WASHINGTON, JULY 22, 2003 - "Although Freddie Mac's financial restatement triggered this hearing, today's testimony underscores the need for substantial accounting reform, including simplification of the Financial Accounting Standards Board's (FASB's) standards for derivatives and hedging activities," said Rep. Cliff Stearns (R-FL), Chairman of the Commerce, Trade & Consumer Protection Subcommittee. "In addition to holding a follow up hearing focused on Freddie Mac's restatement after release of the Doty Report, I will reintroduce legislation moving financial accounting standards toward a principles-based system."
In testimony today, witnesses agreed with Stearns on the need for reform, including the simplification of FASB standards. In addition, Martin Baumann of Freddie Mac testified, "I commend the subcommittee for laying before the public the importance of financial accounting standards before those issues hit the front page. Mr. Chairman, I also want to state my support for the thrust of your efforts to move GAAP (Generally Accepted Accounting Practices) toward a principles-based framework." Baumann also reiterated Freddie Mac's intention to report to the Securities Exchange Commission.
In addressing the need for Freddie Mac's restatement, Stearns brought up the complexity of FASB's 800-page standard for derivatives and hedging, which Freddie Mac misapplied in its financial statement. "This hearing reinforced the evidence that the efficacy of FASB's standards falls short of what is needed in the 21st century," concluded Stearns. "Investors deserve significant change to enhance transparency and to standardize the financial statements of similar companies for better comparison and comprehension."
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