Since the joint collapse of Enron and Arthur Andersen in 2000, there has been a series of accounting related scandals which, at the very least, raise serious concerns about the appropriateness of the current financial reporting system. In response, the AICPA has taken the initiative of re-thinking financial reporting by establishing the Special Committee for the Enhanced Business Reporting Model (EBRM), also called the Starr Committee after its chairman Michael Star from Grant Thornton. This committee examined the proposals presented in the early nineties by another special Committee, the Jenkins Committee. Despite the fact that its chairman, Ed Jenkins, subsequently headed the FASB, the Jenkins Committee recommendations were mainly not put into practice, one reason being that the late 1990s bull market made its concerns about the adequacy of GAAP seem redundant. By contrast, one of the underlying questions confronting the Starr committee was an unanswerable one - whether the malfeasance crisis could have been avoided if the improvements to financial accounting and reporting suggested in that earlier report had been implemented.
While these questions are mostly speculative, the committee decided that the accounting profession by itself did not have the authority or the ability to create a new reporting model with its enormous societal consequences, and so in order to bring about substantive change it transformed itself in July 2004 into a broader consortium of stakeholders in the financial reporting process. The Enhanced Business Reporting Consortium (EBRC) describes itself as: "A Consortium of stakeholders collaborating to improve the quality, integrity, and transparency of information used for decision-making in a cost effective, time efficient manner." The Star Committee, under its Public Company Task Force, had a set of work products that will serve as inputs to the EBRC. These work products of the consortium were a set of sample reports that illustrate the kinds of enhanced disclosures that it advocates as necessary and useful for complex organizations in today’s information economy, and which serve as a starting point for further discussion.
By design, the content of the first two sample reports are not especially “radical”. As Paul Herring, the chair of the Public Company Task Force wrote during the process that created these reports: “Formats that follow outlines that are already in general use in the business information supply chain are likely to gain faster acceptance than those that are new… We will explore potential enhancements to the existing financial reporting format but will not consider wholesale re-structuring of the financial statements.” By contrast, the third sample report project, labeled the “Galileo project” was the one that was meant to be far-reaching in nature. The Starr Committee examined extended financial reporting—additions to the standard set of GAAP based accounting reports, with the explicit understanding that while these reports are no longer appropriate for stakeholders, the committee itself was not in a position to change GAAP.
This incremental approach may make perhaps sense in terms of change management, but it can also constrain the possible changes to the reporting model that are made available to the consortium to discuss. Thus the Galileo project serves as a remedy to the cautious approach, by being the medium to consider “extreme accounting” including both supplements to standard reports as well as possible changes or modifications to GAAP itself. Further, while all the sample reports use somewhat technology to transform the way in which financial information is presented, Galileo goes further in examining how the IT infrastructure of today’s digital can also fundamentally transform the process of obtaining and preparing, as well as communicating, financial information.