Independence and Objectivity of the FASB in the Standard- A. Formation of the FAF and FASB Exhibit A- Financial Accounting Foundation, Financial Accounting Standards Board and Financial Accounting Standards Advisory Council................................ Exhibit B― Analysis of Diversity of Responses to FASB Proposals............... Exhibit C- Comparative Analysis of Specific Standards of Conduct.... Exhibit D- The Record of the FASB and the Accounting Profession in Setting FINANCIAL ACCOUNTING FOUNDATION FINANCIAL ACCOUNTING STANDARDS BOARD STATEMENT OF POSITION ON STUDY ENTITLED, “THE ACCOUNTING ESTABLISHMENT", AN OVERVIEW IN PERSPECTIVE The Financial Accounting Foundation (“FAF" or the "Foundation") and the Financial Accounting Standards Board (“FASB" or the "Board") welcome the opportunity to cooperate with the Subcommittee on Reports, Accounting and Management in the exercise of its Congressional oversight responsibilities, and to submit this Statement of Position to state their views with respect to certain of the Study's recommendations and to correct and supplement the Study and to balance the record. The FASB is the authoritative professional body designated by the American Institute of Certified Public Accountants (“AICPA”) and recognized by the Securities and Exchange Commission (the "SEC" or the "Commission") to establish and improve financial accounting and reporting standards-i.e., those standards concerned with recording meaningful information about economic events and transactions in a useful manner in financial statements. The FASB does not set auditing standards or regulate auditing, which involves examining financial statements for the purpose of expressing an opinion as to whether they are presented fairly in conformity with generally accepted accounting standards. The formation of the FASB in 1972, as the independent, full-time accounting standard-setting body within the FAF, was widely endorsed by the accounting profession, the SEC, the financial and business community, accounting educators, and other commentators. As such, the FASB is primarily concerned with, and specially competent to comment on and take issue with, the Study's assertions with respect to the establishment of financial accounting standards and its recommendations for action by the Federal Government in that area. We understand that the AICPA, other professional and financial associations, individual accounting firms and others will be commenting on auditing and the other major areas of In particular, the FAF and FASB strongly disagree with the recommendation of the Study that the Federal Government directly establish financial accounting standards for publicly-owned corporations. The FAF and FASB strongly oppose this Study recommendation because in their opinion the present system of setting financial accounting standards, as it has evolved and is evolving, has successfully served the public interest, and affords the greatest promise of further developing accounting standards which are meaningful and useful to the investing public and other users of financial statements. There is also no evidence in the Study or elsewhere, and indeed substantial doubt, that a Federal Government agency or agencies could do as well. In the first place, a take-over by the Federal Government, or any action reducing the FASB from a standard-setting to a consulting or advisory body, would seriously disrupt the progress being made and would inevitably result in significant delays while an untried system is developed and launched. We believe, moreover, there would be a substantial reduction in the significant voluntary efforts which have characterized the commitment of the accounting profession, academicians, financial analysts and other users of financial statements, and others within the business and financial community in contributing generously of their time and effort to improve financial accounting standards. Second, the Study fails to document its claim that standard-setting by the Federal Government-which has concentrated in special, limited areas such as regulated industries, or on a particular aspect of accounting, such as cost determination for government contracts-would be feasible or effective in the broader area of general purpose financial statements. We are clear that it would not be. Public investors, creditors and other users concerned with capital formation and deployment and the resources and operations of business enterprises rely on general purpose financial statements prepared in conformity with generally accepted accounting principles. These generally accepted principles provide an objective framework within which literally thousands upon thousands of transactions and events are evaluated, classified and reduced to meaningful numbers and then presented in financial statements useful for decision-making. The FASB's task of establishing and improving the accounting standards on which these financial statements are based is infinitely more pervasive and complex, the constituency significantly larger and more diverse, and the subject matter not limited to a specific function of Government. When understood in these terms, it is clear why the SEC, the accounting profession, users of financial statements, the business and financial community, accounting educators, and responsible public commentators alike have supported the FASB, operating within a framework of SEC review and participation. Congress has long been aware of and inquired before about this structure, but has not disturbed it. As documented in this Statement of Position, this structure has assured development of meaningful financial accounting standards in the public interest and financial statements useful for economic and investment decisions. Third, the present system of setting accounting standards promotes the coming together of varying points of view in order to assist the FASB in determining what is most in the public interest. This is not to say that consensus satisfactory to all is necessarily desirable or can always be reached, or that progress is always as fast as some would have it. Some FASB accounting standards have been criticized by a number of those participating in the process, but this criticism is positive and constructive and assures general support and continuing participation. On the other hand, were the Government to take over, the process would in our judgment tend to become more adversary in nature, and constructive criticism and willingness to cooperate would diminish, and with it accounting standards most responsive to the needs of investors and the general public. We are concerned that Government accounting standard-setting would become legalistic and mechanical in both formulation and application, with problems frequently resolved in the courts. Finally, we are concerned that displacement by Government of the present process of setting accounting standards could adversely affect the status of the United States as the world's largest and most open capital market. That status was achieved in part because the existing framework for establishing accounting standards provides financial information recognized and relied on throughout the world for its integrity and utility in reaching capital and investing decisions. If, on the other hand, accounting standards come to be formulated primarily to direct or implement specific, and changing, policy goals, this objective could seriously undermine confidence in financial statements and hamper the promising efforts in recent years towards developing the international capital markets. We say this only after carefully considering the points advanced in the Study. We also say this as professionals who have given years of study, thought and effort to the most effective mechanism for setting accounting standards that best serve investors in particular and the public in general. Our objective in submitting this Statement of Position is to provide a complete, accurate and balanced portrayal of the corporate financial accounting matters dealt with in the Study. We are confident that our presentation will demonstrate to the satisfaction of the Subcommittee that no fundamental change is required in the standard-setting process which, in cooperation with the SEC, has worked successfully to give the United States the most advanced accounting and corporate disclosure standards in the world. In particular, we emphasize, and will document in this Statement of Position, that: 1. The accounting profession and the FASB, with the support, cooperation and participation of the private sector and the SEC, has been responsive to and acted in the public interest in establishing accounting standards. Contrary to the Study's assertions, the FASB's public due process procedures result in broad public participation in the standard-setting process. The analysis of the record demonstrates conclusively that the FASB meets its responsibilities with integrity, independence and objectivity and is not "dominated" (whether in terms of money, personnel or organizational support) by any of its sponsoring organizations, the large accounting firms or any "special interest group". There is a significant and steady record of progress in this cooperative effort with Government in establishing meaningful accounting standards, responsive both to newly emerging problems as well as the more intractable problems of the past. In its less than four years of operations, the FASB has issued 14 Statements of Financial Accounting Standards, 18 Interpretations, 20 Exposure Drafts, 13 Discussion Memoranda and held 15 public hearings on a range of significant accounting matters, and is currently engaged in a project to establish a comprehensive conceptual framework, including objectives of financial statements, to guide further improvements in financial accounting and reporting. (Parts I, II and III and Exhibits A, B, C and D) |