Archive for July 28th, 2009

FASB Should Counter Political Meddling

Tuesday, July 28th, 2009

A report commissioned by the Federal Accounting Standards Board and due out today accuses Congress of meddling in accounting rulemaking and strong-arming FASB into changing accounting regulations. “While it is appropriate for public authorities to voice their concerns and give input to standard setters, in doing so they should not seek to prescribe specific standard-setting outcomes,” the report reads.

In a recent column on SmartPros.com, Smeal’s Edward Ketz argues that interference in FASB standards setting is nothing new, and there’s no point in hoping that it goes away.

More from Ketz:

Previous leaders of the FASB, including Armstrong, Kirk, and Wyatt, have acknowledged the presence of political factors and how they prevent standard setters from finding technical solutions to technical problems.  And they yearned for a world in which standard setting would be insulated from politics.  Alas, such a world does not exist.

Leaders of the FASB would be much better off if they just accepted the world as it is instead of bemoaning the one they face.  Then they should embrace the political challenges and take the offense, as staying on defense is almost always a losing proposition.  And they should not wait until the political pressures are too great when little or nothing can be done.

For example, immediately after the collapse of WorldCom, the FASB should have seized the moment.  Investors and creditors were yelling and screaming for justice after the implosions of Enron and WorldCom, so much so that the almost economically comatose White House woke up, the Congress went from almost killing Sarbanes-Oxley to speeding up and ensuring its passage, and even Harvey Pitt found religion.  The FASB should have taken immediate action to require the expensing of stock options.  It also should have taken steps to change the accounting for special purpose entities.  And, in the process, it could have dared anybody to prevent them from mandating more truthful and more transparent accounting.

… Let’s quit wishing for a world that doesn’t and won’t ever exist.  That’s a child’s game.  Let’s engage the enemy in the world we have.  The FASB has something to contribute to the investment community, and its work is too important to whine about the tactics of the enemy.  Let’s take the fight to the public.  If the FASB did this, I think it would win.  And we would all be better off.

Tags: Accounting, Ketz, Politics
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