Corporate America Is Fed Up With Fasb
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That organization, of course, is the Financial Accounting Standards Board (FASB), established in 1973 at the behest of Corporate America to strengthen private-sector control over rulemaking. On Apr. 14, trustees of the Financial Accounting Foundation, which oversees FASB, will meet to deliberate, and possibly decide, on a replacement for 58-year-old Chairman Dennis R. Beresford, who will retire June 30 after serving in the post for the maximum ten-year period. Trustees have managed to keep names of any front- runners a tight secret.
Pity Beresford's successor. By most accounts, the winning candidate will take over the office at a time when FASB's relations with its corporate constituency have deteriorated so sharply that its future as an independent body is in question. Critics, including accounting firms and big corporations such as Citicorp, General Electric, and Motorola, complain that FASB of late has departed from its mission of devising rules that reflect marketplace realities. Instead, FASB is formulating rules that critics find burdensome, incomprehensible, and unnecessary. At the same time that FASB permits big, expensive projects to drag on for years, it overwhelms companies and their accountants with rule and proposal changes faster than they can keep up with them. Philip D. Ameen, vice-president and comptroller at General Electric Co., says that FASB "tends to start with the idea that current accounting has to be overturned. The wholesale dismissal of well-understood practices doesn't seem to be the most effective or productive means of setting standards." Vice-Chairman James J. Leisenring shrugs this off. "The criticism has been issue-specific," not criticism of the institution per se.
Although corporations have griped about FASB for years, some are going further. Citicorp Chairman and CEO John S. Reed has called for scrapping FASB altogether and has even told Chairman Arthur Levitt Jr. of the Securities & Exchange Commission, which enforces the rules FASB makes, that he'd rather the government made the rules. Citicorp, for one, now steers clear of "wash sale" transactions that would entail compliance with newly effective FASB 125. That rule, which Citicorp Controller Roger W. Trupin describes as "ridiculous" though its financial impact is relatively small, requires gains on asset sales to be reported even if the asset is immediately reacquired. Adds Trupin: "More than ever, they're circling the wagons. They're not listening anymore."
A LOT OF FLAK. Some companies have even quietly discussed simply ignoring some FASB provisions. Asked about such a move, Levitt emphatically responds: "The financial statements would not be acceptable for filing." As for FASB's future, he adds: "I shall do everything in my power to protect the FASB and to nurture the process of independent standard-setting. The alternatives are too onerous. Politicization of the standard-setting process would be an economic catastrophe."
Several recent FASB moves account for much of the dissatisfaction. In 1995, FASB caught so much flak for proposing to require that employee stock options be expensed that the board effectively backed down. Now, companies are fuming over other FASB proposals calling for major changes in accounting treatment, presentation, and disclosure, notably a change that would require current market valuation rather than historical cost treatment for derivatives transactions. Big banks like Citicorp contend that the change will severely erode the value of instruments such as swaps as risk-management tools.
Companies also fault FASB's "comprehensive income" proposal, which would require items such as unrealized gains and losses to be reported separately from net income. Companies say that would make financial statements even more confusing. FASB's so-called segment reporting proposal, which would call for more detailed data on lines of business, would be excessively burdensome, say companies. And they oppose as simply unnecessary a proposal that would require consolidation into the parent of certain units controlled by the company in addition to those in which it holds majority stakes.
To some, the most contentious issue is FASB's dogged resistance to international accounting standards and its demand that foreign companies seeking to raise capital in the U.S. play by its rules. Its resistance, though, could pose the more serious long-term threat to FASB. The New York Stock Exchange, along with an ad hoc organization of financial executives known as the International Accounting Standards Committee (IASC), is pushing for "international harmonization." Officials of the IASC and the NYSE, which seeks foreign company listings, declined to comment. Vice-Chairman Leisenring says that FASB favors global standards but not weaker ones. Right now, he says, FASB and IASC are "miles apart. There are an infinite number of differences."
For his part, Beresford concedes that FASB's consensus culture may be partly to blame for the board's unpopularity. "The chairman has limited authority in terms of forcing things to get done," he says. Personalities play a role, too, FASB- watchers say. In debates over proposed rules, Leisenring, described as a brilliant but strong-willed theoretician, typically outflanks the courtly, more pragmatic Beresford. Without naming Leisenring, Beresford says: "Some people want to study things to death and look for ideal solutions."
To FASB's harshest critics, the accounting body's demise would be the most ideal solution.