SAXE
LECTURES IN ACCOUNTING
" DISCLOSURE BEYOND ACCOUNTING DISCLOSURE : AN UNSATISFIED NEED"
by Professor Homer Kripke, New York University School of Law, April
22, 1980
[http://newman.baruch.cuny.edu]
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ARTICLE.
"And
yet the SEC's understanding of the decisional process was naive.
Its first effort to find out what users wanted to get out of the
disclosure process was the appointment early in 1976 of the Advisory
Committee on Corporate Disclosure, on which I served. On the verge
of that appointment, Ray Garrett, Jr. having just resigned as chairman
of the SEC and speaking with the new program in mind, stated his
view of what the SEC's understanding of the disclosure process was;
and I quote from Garrett's speech of January 14, 1976:
"'There
is an implicit, fundamentalist Faith in the approach contained [in
the Securities' Act forms]. Investors make investment decisions
primarily by extrapolation from a company's past experience, accurately
portrayed. I certainly do not know and I am reasonably confident
that the Commission collectively does not know the extent to which
this is statistically true.'
"Phrasing
that in my own terms, Ray Garrett said that the Commission assumed
that securities analysis consisted in an extrapolation of past earnings
records of the company into the future, and on the basis of that,
making estimates of securities values. He left unsaid the obvious
-- that earnings were based on the accounting model founded on historical
cost, and that the SEC was assuming that this accurately modelled
the past experience of the issuer. Well, everybody but the SEC knew
that that was not the securities decision process."
*
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