Avoiding ‘earnings management’ requires transparency in reporting standards.
John Ferguson, CDP, formerly was a principal with Deloitte & Touche, and now chairs the current issues committee of the Society of Depreciation Professionals. This article reflects the views of the author and not Deloitte or the Society. Email him at firstname.lastname@example.org.
The Securities and Exchange Commission (SEC) is taking steps toward substituting International Financial Reporting Standards (IFRS) for U.S. Generally Accepted Accounting Principles (GAAP). The most recent is publication last November for public comment of a proposed substitution process that the SEC refers to as a “roadmap.” Having certainty surrounding existing utility asset and depreciation accounting practices enhances the ability to use financial statements to accurately depict the results of operations and financial status of reporting entities.
These practices deserve to survive such a substitution, as they are consistent with the SEC’s roadmap statement that “it is important that the accounting standards produced are capable of improving the accuracy and effectiveness of financial reporting and the protection of inves-tors” (Nov. 14, 2008 SEC Release No. 33-8982, p. 23). If these practices don’t survive, regulators, their jurisdictional entities, and the investors in these entities might find the changes disturbing, and the SEC will not have accomplished its intended purpose.