What's Going to Happen to Financial Reporting in 2011?

Interesting post via Tom Selling @ The Accounting Onion (H/T David @ The Summa).

Although Munger's criticisms of accounting standards setters are devastating and accurate, Coffee's point is that the ultimate responsibility for the fundamental weaknesses in our system of financial reporting, lies with the SEC and the bank regulators.

I agree with Coffee, and from a reading of the entire interview, I am confident that Munger would agree with him as well. No matter how one may have felt about the wisdom of outsourcing accounting standard setters to groups of individuals who themselves have vested interested in the rules they set, there have been numerous points in SEC's history when that financial reporting policy should have been seriously reassessed. Although lip service has been given from time to time, a serious reconsideration has never happened.

As for what we can expect from the current SEC leadership, Munger must be highly pessimistic. Mary Schapiro may have a record of integrity and effectiveness in some other areas of capital markets regulation, which I understand less well, but her past performance clearly indicates neither sufficient interest nor acumen for accounting. None of the other Commissioners for that matter have yet to stick their necks out or say anything profound on accounting matters either.

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