Will Financial Statements Become Obsolete?

In the 1990s, the financial press began to question the information content of traditional historical cost balance sheets. For example, Peter Drucker commented that:

Balance sheets were designed to show what a business would be worth if it was liquidated today . . .What managements need, however, are balance sheets that relate the enterprise's current condition to its future wealth-producing capacity . . . Financial accounting, balance sheets, profit-and-loss statements, allocations of costs, etc., are an X-ray of the enterprise's skeleton. But much as the diseases we most commonly die from "heart disease, cancer, Parkinson's" do not show up in a skeletal X-ray, a loss of market standing or a failure to innovate do not register in the accountant's figures until the damage has been done. (P. F. Drucker, "We Need to Measure, Not Count". The Wall Street Journal, July 17, 1993, p. B6. See also P. F. Drucker, Post-Capitalist Society. New York: HarperCollins, 1992.)

And William Davidow, writing in Forbes, said:

Double-entry bookkeeping, developed by Luca Pacioli in 1494, lets businesses keep track of changes in their assets. But this system, still in use today, deals primarily with tangible assets such as cash, inventory, accounts receivable, factory plants and equipment. It ignores intangible assets: goodwill, employee knowledge, quality of management, customer relationships, information infrastructure, trade secrets, patents, etc. (W. Davidow, "Why Profits Don't Matter",  Forbes, April 8, 1996, p. 24.)

In response to claims that financial statements may no longer be relevant, the AICPA established a Special Committee on Financial Reporting, chaired by Edmund Jenkins (the Jenkins Committee), to recommend improvements in business reporting. Following three years of deliberations, the Committee released a series of recommendations, among them that businesses report forward-looking information (AICPA, Report of the Special Committee on Financial Reporting (the Jenkins Committee), Improving Business Reporting: A Customer Focus: Meeting the Information Needs of Investors and Creditors, 1994). However, the recommendations have received mixed reviews. For example, Dennis Beresford, former FASB chair, stated, "It is going to be a very important document for us, a real stimulus for changes and improvement in financial reporting over the next 5 to 10 years". In contrast, Frank Borelli, the Financial Executive Institute's CFO Advisory chair, thought otherwise, stating, ". . . the committee's recommendations can be viewed as very self-serving. It looks as if they are trying to generate more services, which equates to more revenue".

Jenkins Committee Report - https://www.aicpa.org/InterestAreas/AccountingAndAuditing/Resources/EBR/DownloadableDocuments/Jenkins%20Committee%20Report.pdf

Required:

Select an annual report from the SEC' EDGAR system (http://www.sec.gov), from a public company's home page, or from a library, and prepare a report that:

1. Documents and criticizes the key recommendations of the Jenkins Committee report.
2. Explains how the Jenkins Committee's recommendations would bear on the annual report you selected.
3. Explains nonfinancial disclosures you think would improve the annual report given the company's industry (for example, the identity and stability of foreign, crude oil, supply sources in the oil and gas industry).