The FAF and Corporate Accounting Practices

Abstract

W HILE financial statements are by no means the only factors involved in financial analysis and the determination of investment quality and value, it is true that adequate financial statements are a prerequisite the work of the analyst and meaningful decisions of investors. Financial analysts, therefore, have a great responsibility for pointing out where financial statements are deficient or fail provide the true and full information required as background for investment judgment. Financial reports are presented by and must be the responsibility of the officers and directors of the companies. They require certification by independent accountants, not only as accuracy but as the acceptability of the accounting principles used in their preparation. A paramount consideration for both the company and the accountant must be informative disclosure the investor in the enterprise. The Securities and Exchange Commission is charged with the duty of protecting the investor and the public interest. Therefore, it has the basic power insist that financial statements be made truly informative. To the extent that changes in past practices, required in the investor and public interest, fail be made by corporations or fail be insisted upon by the accounting profession or financial analysts, the SEC can be expected fill in any voids. No corporate, accounting or analyst group can be unaware of the increasing tempo of action on the part of the SEC in carrying out its legal responsibilities. If these groups are be effective through assisting in the shaping of decisions as financial reporting which will be made by the SEC, it is obvious that action is required now-inaction in the hope that accounting problems in financial reporting will go away or not be brought up for review will no longer suffice. It is beyond dispute that the SEC has the power decree acceptable accounting principles and practices and, in fact, it has many times been urged take this course. However, the Commission has generally preferred work on a basis of cooperation with corporations, accountants, and analysts, each of whom must assume a share of responsibility for reaching solutions many accounting problems in order provide financial reporting that is fair all segments of society. Failure assume this responsibility can only result in deterioration of confidence in financial statements as a basis for investment judgments. Accountants and analysts obviously should have the greatest interest in accounting methods and procedures that provide realistic disclosures that are fair both investors and corporations, and such as will be in line with the considered requirements of the SEC in discharging its legal function of serving the investor and public interest. In carrying out the varied activities of the Financial Analysts Federation, which now includes 39 member Societies with an overall membership around 10,500, there are three standing committees which have particular responsibilities in the area of financial information, accounting, and government relations. The Corporate Information Committee has the duty to encourage, develop, and improve the quality and quantity of financial information disseminated by corporations . . .. The Financial Accounting Policy Committee, which until a year ago operated as a section of the Corporate Information Committee, now has independent status and the duty to develop, maintain, and improve liaison between the corporation and the accounting profession; study accounting procedures, and make recommendations of proper accounting procedures be used by financial analysts . . .. The Government Relations Committee has the duty to develop and maintain contacts with federal and state agencies which affect financial investment . . ..