My word! U.S. accountants suggest brevity a virtue

Thu Jul 12, 2012 6:13pm EDT

* Some annual reports have doubled in size since 2004

* Complex accounting standards in part to blame

By Dena Aubin

NEW YORK, July 12 (Reuters) - Keep it short.

So said the professional group that sets U.S. accounting standards in a statement on Thursday about the financial reports companies issue each year.

The Financial Accounting Standards Board is seeking comment through Nov. 16 on ways to make financial reports more relevant and useful.

Cutting the volume of verbiage is not the main goal but will probably be a result, the Financial Accounting Standards Board said.

"Financial reports have become too long, and thus much less effective tools for communicating with investors," said FASB spokeswoman Christine Klimek. Often the information investors need is there but "hidden in plain sight," she said.

From basic tables showing income, cash flow and assets and liabilities, annual reports filed with the Securities and Exchange Commission have ballooned as accounting standards have grown more complex over the years.

"The real problem is not so much the financial statements themselves, it's the SEC filings surrounding them which have gotten really long and really boring," said Michael Young, a partner at law firm Willkie Farr & Gallagher and expert on financial reporting.

Between 2004 and 2010, the size of annual reports grew by 16 percent and footnotes expanded by 28 percent at 25 of the largest U.S. companies, according to a November 2011 report by accounting firm KPMG and the Financial Executives Research Foundation, a nonprofit research group.

Dow Chemical's annual report grew by 72 percent to 203 pages, while Wells Fargo's more than doubled to 212 pages, that report said.

WORLDWIDE PROBLEM

More complex accounting standards, especially for derivatives, hedges and fair value measurements, also made financial disclosures more complex, the FASB report said.

"We just tend to add to these requirements and never take any away," said Bruce Pounder, director of professional programs at SmartPros, a firm that provides education to accounting professionals.

Few individual investors read annual reports any more, and even institutional investors have trouble finding the information they need, Pounder said.

Regulators across the globe are grappling with the problem. A European Commission advisory group is also trying to reduce some of the information clutter in financial reports.

FASB is also considering different formatting techniques to make information easier to find, such as the use of tables instead of text for some notes.

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