SEC to Hold Roundtable on ‘Measurement Uncertainty in Financial Reporting’

Sarah Woodman, Global events journalist
October 24, 2011 /

The Securities and Exchange Commission has announced that the inaugural roundtable in the Financial Reporting Series will be held on November 8.

The purpose of the Financial Reporting Series is to proactively help identify risks and potential improvements in the financial information provided to investors.

This roundtable will bring together investors, preparers, and auditors to provide input about those measurements (and associated disclosures) where the outcome depends on future events that by definition are presently unknown.

The inaugural roundtable will examine the extent to which financial reporting should include measurement uncertainties, and the information investors find important to understanding and assessing those uncertainties.

“We want to consider whether the right balance has been struck to provide investors with useful information,” said SEC Chief Accountant James Kroeker.

“This roundtable discussion will provide us with an opportunity to hear directly from investors about the challenges in understanding the types of uncertainties included in financial reports.”

In general, “uncertainty” means a state of limited knowledge where it is impossible or impracticable to describe exactly an existing state or a future outcome, the SEC noted.

Uncertainty exists in financial statements where measurements “to a large extent…are based on estimates, judgments, and models rather than exact depictions.”

As the level of uncertainty increases, challenges may exist for financial statement preparers to estimate the future outcome of the uncertainties inherent in many business transactions, auditors to verify the subjective judgments about those uncertainties, and investors to understand those uncertainties and assess their potential impact on future earnings or cash flows.

For example, seemingly small changes from a management-selected input used to determine fair value could have a material impact on the reported result at any specific date. For example, when a fair value measure is determined primarily based on a discounted cash flow analysis, use of a discount rate that is 100 basis points different could mean the difference between a material goodwill impairment charge, or none at all.

The roundtable will feature three panels comprised of investors, financial statement preparers, and auditors.

The chairs of the Financial Accounting Standards Board and the Public Company Accounting Oversight Board will attend as observers. A final agenda and list of participants will be published closer to the event date.

The roundtable will begin at 10 a.m. in the multipurpose room at the SEC’s headquarters at 100 F Street, N.E., Washington, D.C. It is open to the public with seating on a first-come, first-served basis, and also may be viewed via a live webcast on the SEC website.

 

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