Five years after Enron, corporate financial reporting stands at a crossroads. One route leads deep into the lightly charted terrain of "principles-based" reporting, where thousands of rules and regulations would be replaced by a relative handful of guiding precepts.
The norm in Europe, this would be terra incognita of the most profound sort for American companies. Proponents argue that the unceasing torrent of new standards and regulations is creating an unworkable system. Foes counter that if the existing rules failed to prevent corruption and provide transparency, a system based on vague pronouncements is doomed to fail.
The alternative path entails a continuing series of changes to the status quo that would undoubtedly increase complexity even as they attempt to improve transparency and accountability. No issue underscores these concerns more dramatically than fair-value accounting, in which assets and liabilities are marked to market rather than recorded at historical cost. The degree to which fair-value accounting is embraced (or not) will have a major impact on the very nature of corporate finance.
In short, Sarbanes-Oxley was just a warm-up for what lies ahead. In this special report, we examine the issues raised by principles-based accounting and disclosure, fair-value measurement, and improved financial transparency. We also include a poll of CFOs who have much to say about these issues. And, perhaps, much to learn.