On Friday, the SEC’s Advisory Panel on accounting approved recommendations to the financial reporting system. The group, led by Robert Pozen, chairman of MFS Investment Management in Boston and former vice chairman of Fidelity Investments, agreed to a number of proposals which include:

1) Moving away from industry-specific accounting;

2) Limiting corporate restatements to material items including a recommendation that issuers make restatements when discovered and provide investors with more information about the error and the impact of the error between the time of discovery and the actual restatement;

3) Providing more protections from lawsuits or SEC enforcement actions for companies and auditors exercising “reasonable” professional judgment; and

4) Recommending that the SEC require the 500 largest corporations to data tag at least parts of their financial reports to make comparison simpler.

SEC Chairman Cox created the panel June 27, 2007 to examine the U.S. financial reporting system with a goal of reducing unnecessary complexity and making information more useful and understandable for investors. Specifically, the goals of the group included reviewing: the current approach to establishing financial accounting and reporting standards; the process of regulating compliance by registrants and professionals with reporting standards; the systems for delivering financial information to investors; factors that drive unnecessary complexity; standards that impose undue costs; and whether any cost benefit analysis is likely to be impacted by the increasing use of international accounting standards.

A report is due later this year.

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