eXtensible Business Reporting Language (XBRL) are two tools Edward
Nusbaum believes could significantly help investors better
understand complicated financial reports.
The Grant Thornton US chief executive was one of 17 members on
the US Security and Exchange Commission’s (SEC) advisory committee
on improvements to financial reporting, which issued its final
The committee was established in June last year to examine the
US financial reporting system and suggest ways to increase the
usefulness of financial information to investors, while reducing
the complexity of the system to investors, preparers and auditors.
Its members also included users of financial statements, former
regulators, chief financial officers and Deloitte Global chief
executive James Quigley.
The 25 final recommendations had five underlying themes:
• increase the usefulness of information in SEC reports;
• enhance the accounting standards-setting process;
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• improve the substantive design of new accounting
• delineate authoritative interpretive guidance; and,
• clarify guidance on financial restatements and accounting
No complete solution
Nusbaum said no single recommendation or even the cumulative
effect of 25 recommendations will completely eliminate all layers
“Part of the problem of course is that the world is complex.
There are a lot of very complicated business transactions that take
place and when you have complicated derivatives or financial
instruments, the accounting is going to be complicated and there is
nothing we can do about that,” he said. “Having said that, when you
add up all of these recommendations, they do make a difference and
they do have the cumulative effect of partially reducing
“For example, something like adding key performance indicators
(KPIs) doesn’t simplify a company’s life, but it does provide
useful information on a consistent basis to investors. And it
should make it easier for investors to analyse the performance of a
company – not just financial performance, but the overall
development of a company. In essence, that reduces the complexity
of the ability to analyse the financial results.”
KPIs would take the form of a short executive summary at the
beginning of a company’s annual report to describe the most
important themes and indicate where investors could find more
detailed information on particular subjects.
The mandatory use of XBRL was also promoted as a way of
simplifying the delivery of financial information.
Nusbaum said KPIs and XBRL are two recommendations Grant
Thornton will be particularly active in implementing.
“We have been a leading supporter of both KPIs and XBRL. Grant
Thornton will continue to play a leadership role in all of the
recommendations, but particularly those two,” he said. The mid-tier
leader said recommendations on providing guidance for accounting
judgements and getting investors more involved in the
standard-setting process were also important.
The accounting judgement recommendation suggested the SEC should
issue a policy statement articulating how it evaluates accounting
judgements, including the factors it considers when making
evaluations. It was suggested the Public Company Accounting
Oversight Board should also adopt a similar approach.
The statement of policy regarding accounting judgements should
address the choice and application of accounting principles, as
well as estimates and evidence related to the application of those
principles, the committee said.
Suggested methods to further the involvement of investors in the
standard setting process included adding investors to the Financial
Accounting Standards Board’s (FASB) oversight board – the Financial
Accounting Foundation, including more experienced investors on both
the FASB and its staff, and re-evaluating the manner, timing and
quality of the investor input received throughout the
Nusbaum said many of the recommendations, such as the one on
accounting judgement, could be implemented immediately by the SEC.
However, other recommendations, such as XBRL and KPIs, could take a
few years to implement effectively.