The Financial Accounting Foundation (FAF), the body that governs the FASB, has issued a press release announcing the results of their one meeting to consider the feedback on their proposals to change the way the FASB operates. To reiterate from a prior post (though somewhat less gentle this time!) the proposing document was a model of obfuscation. It was clear from the outset that FAF wasn't at all interested in knowing what anyone else had to say about reducing the size of the FASB, voting rules, or how the FASB would set its agenda. Any discussion of past problems, current needs, etc. were vague (more accurately, not mentioned) in a thinly veiled attempt to frustrate and limit comments. It certainly frustrated me; I abandoned the effort as soon as I realized that anything I wrote could, by design, amount to no more than the equivalent of shooting at a flea with an elephant gun while blindfolded.
So, predictably -- and despite the clear protests of Financial Executives International, the CFA Institute and numerous former board members -- all the proposals passed muster with flying colors. One of my readers, who shall remain anonymous, wrote to me soon after he heard the FAF news to tell me that he had spoken to a former FASB project manager about it, and the only comment he had was "unbelievable."
Would You Trust the Future of U.S. GAAP to These Guys?
The rat I had been smelling for weeks walked right into the middle of the room during the FAF press conference in which its members rationalized their actions with comments to the effect that requiring new board members to all have knowledge of "investing" (whatever that means) will assure that the entire board will give adequate consideration to investor needs. Right. Guess who will be excluded: someone to replace Donald Young, the current investor representative, whose term expires this year; and you can forget about any more academics, lest some pesky dissenter asks too many uncomfortable questions that could slow down the IFRS convergence train.
And, what kind of convergence are we going to get under the new FASB? If facilitating a constructive and stable convergence with IFRS is the real goal, why is it appropriate for the IASB to have fourteen members, and now the FASB only five? No good answer. Why is it appropriate for the IASB to require a super-majority vote of nine members to adopt a new rule, and the FASB only a simple majority of three -- the FASB chair, who now sets the agenda, plus two handpicked shills? No good answer. What evidence is there that it will be difficult to find new board members who are sufficiently knowledgeable of IFRS to hit the ground running when they are appointed? LOL.
It's obvious to me that the real goal is not a convergence to benefit U.S. investors; for that would require careful study, thinking and time. The real goal is quick-and-dirty convergence -- so that the big audit firms can get on with the business of charging large fees for the accounting changeovers while at the same time lowering their long-term audit risk -- and so that their clients can manage earnings with less fear of interference by the SEC (see my earlier posts here and here for the reasons why this is so, and why it is harmful to investors).
Speaking of the SEC, What's Their Take?
By the way, FASB's pronouncements are rules for public companies to follow whilst the SEC so deigns. One would think, therefore, that the SEC would have taken more than a passing interest in changes to how the FASB is organized and governed. Yet, I haven't noticed a peep out of Conrad Hewitt, the SEC's chief accountant. Given his recent track record, I can't say I'm surprised. All I can say is that I'm glad that I served in the Office of the Chief Accountant in a different era. Under the current administration the SEC has become more the captain of the public company cheerleaders and less the watchdog of investors.
It's a shame.
Conrad Hewitt? Did you read my 6 February post mentioning him? Hahahaha as the Mogambu Guru would say. I too was struck by how sudden the reduction in the FASB from 7 to 5 members was.
Posted by: Independent Accountant | February 29, 2008 at 06:09 PM