Accounting & Tax

SEC Task Force Says Investors Need More ‘Soft’ Data

New report says financial statments don't reflect true value of companies. StaffMay 23, 2001

Dow Jones Newswires reports that a new Securities and Exchange Commission task force calls for an overhaul of U.S. accounting rules, saying financial statements currently don’t reflect the true value of public companies.

The task force, chaired by Jeffrey Garten, dean of Yale University’s School of Management, recommends disclosing to investors “soft” data, such as intangible assets, that don’t appear on balance sheets.

The task force’s report, according to Dow Jones, stopped short of saying companies should be required to providing such information but said any information that helps investors assess a company’s future performance “should be encouraged” by regulators. It also recommends that firms be protected from litigation for providing this data, as long as the data is clearly labeled and without the intent of deceit.

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The task force was created by former SEC chief Arthur Levitt to determine whether corporate financial statements provided enough information to investors.

The group concluded that current disclosure, based on generally accepted accounting principles, and quarterly and annual filings to the SEC, produces backward-looking documents showing past transactions that offer little help for understanding where the company is headed in the future, reports Dow Jones.

Yet the task force also rejected the idea of more regulation, saying “a far better approach” would be to make it easier and safer for companies to disclose information beyond what appears in standard financial statements.

Though the group acknowledged that without rules, companies might show only soft data that shows them in a favorable light, they suggested that this was a self-correcting problem, and that “market forces will penalize companies that provide inadequate information relative to their peers.”