responses on these proposals and issues from public respondents in the following categories: the FAF's six sponsoring organizations, the 15 largest accounting firms, all academicians, and Fortune's 1975 listing of the 500 largest industrial companies and each of the 50 largest commercial banking, life insurance, diversified financial, retailing, transportation, and utilities enterprises. These responses are contained in the FASB's public record and are available for public inspection at its offices in Stamford, Connecticut.

This analysis shows in detail how incorrect it is to speculate, as the Study does, that professional organizations, accounting firms and business enterprises act in concert when commenting to the FASB on accounting proposals.

As Exhibit B shows, sponsoring organizations frequently disagree among themselves; maior accounting firms disagree with each other, their clients and the AICPA; and the FASB's most consistent support in terms of positions taken seems to come from users of financial statements. If one were to generalize, or “keep score", the following could be viewed as representative of the entire analysis.

Taking the 19 issues* analyzed in Exhibit B on which it is possible to say that a given response on the Exposure Draft was equivalent to a given attitude on the Board's final tion in the Statement, one sees that the least supportive of FASB decisions were business enterprises. Views expressed by a majority of business enterprises were rejected by the Board on 12 of 19 issues. Those sponsoring organizations representing the views of corporate financial and accounting executives also had little apparent influence on the ASB for the FEI disagreed with the Board on 6 of the 10 issues it addressed and the NAA dsagreed on all 5 on which it took a position.

The record of rejection of the views of business enterprises and corporate financial and accounting executives, conveniently classified as preparers of financial information, stands in sharp contrast to the record of users of financial information, to the extent represented by the Analysts Federation. The Analysts Federation supported the Board on all 15 issues on which it took a position.** The major accounting firms and the AICPA were somewhere teen preparers and users on these proposals; the AICPA supported the FASB on 8 and disagreed on 4, while major accounting firms were in accord on 9 and in

¿ sagreement on 6.

The analysis also contradicts the Study's unsupported charge that accounting firms are "gaminated” or “controlled" by their clients: the number of issues on which major unting firms were consistent with a majority of their responding clients was roughly Avalent to the number of issues on which they disagreed (43 to 42).

The questions used in these aggregate figures are Statement No. 2, issue 1; Statement No. 5, nest, 2 and 3; Statement No. 7, issues 1, 2 and 3; Statement No. 8, issues 1, 2 and 3; Statement 9, issues 1 and 2 (Exposure Draft and Public Hearing); Statement No. 12, issue 1; and Statement No. 14, issues 1-5. On Statement No. 8, issue 1, qualified agreement was classified as agreement.

Study states: “Of the five private groups sponsoring the FASB, only the Financial Analysts deration and its members have an apparent interest in developing accounting standards, which A convey the results of corporate activities to the public. ... The Financial Analysts deration appears to have the least influence as a sponsor of the FASB, and the FASB has yet to blish the type of meaningful accounting standards which would be most beneficial to vestors and other users of financial statements."

In analyzing the public record of responses on specific issues, Exhibit B also demonstrates, in sharp contrast to the Study's speculation, the full range of diverse views on major FASB positions. The following examples illustrate such diversity.

In Statement No. 5, the FASB established financial accounting and reporting for loss contingencies. Support for the provisions subsequently adopted in the Statement was expressed by the Analysts Federation and the AICPA, while the FEI and the NAA opposed them. Six major accounting firms generally agreed with those provisions; five generally disagreed. The seven academicians who took positions unanimously were in support.

This pattern was generally followed on the specific issues. The FASB decided that accrual would not be permitted for self-insured risks. Business firms overwhelmingly opposed this view; fifty firms disagreed with the FASB position and only two supported it. Again, the FEI and the NAA opposed, and again the AICPA and the Analysts Federation supported the "ASB position. Five accounting firms supported the FASB; only one disagreed. Four of the five firms agreeing took a view opposed by the overwhelming majority (20 to 2) of their clients. Again, the academicians unanimously supported the FASB.

Similarly, the FASB proposed and subsequently concluded in Statement No. 5 that accrual not be permitted for catastrophe loss contingencies for casualty insurers. Nineteen business firms disagreed with the FASB position; six supported it. The FEI disagreed again; the Analysts Federation and the AICPA supported the FASB. The three accounting firms disagreeing with the FASB took positions consistent with those of the majority of their clients. Once again the academic commentators responded unanimously in support of the FASB position.

In Statement No. 12, the FASB determined how certain equity marketable securities would be carried on the balance sheet and how declines in market value below cost would be treated. The Exposure Draft's proposal that those securities be carried at the lower of cost or market value was followed in the Statement. But the Exposure Draft's proposal that declines be charged to net income was modified to apply only to securities classified as current assets, with declines in other securities being charged to stockholders' equity.

The Analysts Federation, the AICPA, and the AAA committee members all supported the Exposure Draft's overall approach; the FEI disagreed. Five accounting firms disagreed; four agreed, and three had no clear overall position. Academicians split evenly. Business firms generally disagreed (38 to 13). Four of the five accounting firms disagreeing with the position of the Statement took positions consistent with those of their clients; the four accounting firms agreeing with the position of the Statement all were in disagreement with a majority of their clients.

On the issue of how securities would be carried on the balance sheet, the final FASB position was supported by the Analysts Federation, the AICPA, and the AAA committee members; the FEI disagreed. The major accounting firms were evenly divided on this issue (5 to 5). Business firms again strongly opposed the FASB approach (38 to 2). Two academicians supported the FASB position, and one opposed it. Of the five accounting firms supporting the Board's position, all took positions inconsistent with those of the majority of their clients.

On the second issue in the Exposure Draft, which the FASB modified in its final Statement, the Analysts Federation, the AICPA and the AAA committee members again supported the FASB's Exposure Draft, while the FEI disagreed. The major accounting firms opposed the position in the Exposure Draft by a narrow margin (5 to 4). The two academicians who took a position agreed with the Exposure Draft. Business firms again strongly opposed the Exposure Draft by a margin of 29 to 2.

Reaction to the Exposure Draft's proposal subsequently adopted in Statement No. 8, "Accounting for the Translation of Foreign Currency Transactions and Foreign Currency Financial Statements", to include in determining income foreign currency exchange gains or losses was divergent between users and preparers of financial statements. The Analysts Federation supported the proposal; the NAA disagreed. Three major accounting firms supported the proposal and three disagreed. Business firms overwhelmingly opposed the proposal (54-5).

An interesting picture also emerges from the comments on the Exposure Draft preceding Statement No. 7, "Accounting and Reporting by Development Stage Enterprises", a Statement which the Study characterizes as benefiting "big business." The FASB decided that development stage enterprises should be subject to the same accounting standards as established enterprises, and the Analysts Federation, the FEI and the AICPA supported this view. The major accounting firms split (4 to 4), and nearly half ( 15 of 34) of Fortune's responding corporations disagreed with the FASB.

As mentioned above, Exhibit B contains further analyses of responses on several additional issues in these and other significant accounting standards. While comments analysis is not a precise science and, as Exhibit B points out, necessarily involves judgments in analyzing and classifying responses, the FAF and FASB believe that the results of this analysis demonstrate conclusively that no one "dominates" or "controls" the FASB, and that FASB determinations are made independently and objectively and only after receiving and considering a myriad of conflicting points of view.

D. Funding

The Study asserts that funding of the FASB through the Foundation, and the salaries paid to FASB members and staff, is one means "to insure that financial accounting standards remain compatible with the interests of the 'Big Eight' and their clients." The Study offers nothing beyond speculation in support of this assertion, and indeed nothing else

exists.

In addition to revenues from the sale of FASB publications, reprint royalties and interest income (nearly one-third of total revenues in 1976), the FAF is funded by contributions from a wide range of sources, principally from the accounting profession and business, commercial and financial enterprises, including dues through its program of associate membership. Associate members receive automatically copies of Discussion Memoranda, Exposure Drafts, Statements and Interpretations and the FASB's newsletter "Status Report." For 1976, approximately 45% of the FAF's budget was funded by contributions from the financial and business communities, with the average contribution being $1,300, and the largest being $40,000 or less than 1% of the FASB's operating expenses of $4,199,000. Another $1,766,000 was attributable to dues paid to the Accounting Research Association of the AICPA, with the 15 largest accounting firms accounting for approximately 87% of this total. Additionally, the AICPA, AAA, Analyst Federation and NAA contributed $208,000, $7,000, $7,000 and $75,000, respectively.

While this breadth of financial support is significant, the Trustees' announced and continuing goal is to expand the base of support further and to rely to a lesser degree on large contributions.

Funding of the FAF has been an evolving process. When the FAF and FASB were created in 1972, the most obvious problem confronting the FAF's Trustees was to insure

adequate financing. The Wheat Study Group had estimated an annual budget of up to $3 million per year and had recognized that voluntary contributions would necessarily constitute the bulk of financial support, at least during the start-up phase. The Wheat Study Group mentioned several possible approaches to the contribution question, but concluded that the matter was best left to the Foundation's Trustees.

It was clear to the FAF's first Board of Trustees that, as a matter of practical necessity, the success of the FASB depended upon significant financial commitments from within the accounting profession. Accordingly, the Trustees initially concentrated on establishing this necessary base and, as a result of their efforts, the Accounting Research Association of the AICPA committed to use its best efforts to raise sufficient funds from within the accounting profession to insure that the Foundation would receive at least $2,000,000 in each of its first five years through 1977. As a part of this commitment, the eight largest accounting firms pledged $200,000 in each year of the five-year start-up period and the ARA's suggested contributions for other accounting firms were set proportionately based on their size. As a result of the ARA's efforts, the Foundation has received approximately $2,000,000 each year from the accounting profession, and at December 31, 1976 the ARA held approximately $1,780,000 in excess of its commitment. Membership dues received by the ARA are its source of funds.

The Trustees also sought contributions in the FASB's start-up period from whatever other sources they could find. Contribution campaigns were undertaken by other sponsoring organizations, particularly the Financial Executives Institute. Beginning in 1974 the FAF also commenced direct annual solicitations to further broaden support. Last year the Foundation mailed nearly 9,000 requests for contributions and commenced and implemented a plan of associate membership by which those contributing a specified amount would be assured of receiving automatically the FASB's technical and other publications. This plan has been successful and there are now more than 2,500 associate members.

The FAF Board of Trustees has authorized its Finance Committee to proceed with a new financing plan for 1978 and subsequent years based on further increasing the breadth and depth of public support. Specifically, this plan is based on the principle that no one person, firm or corporation will be solicited to contribute, or will contribute, annually more than the lesser of $50,000 or 1% of the FASB's annual operating expenses. As a part of this plan, the Finance Committee has suggested to the AICPA that the original five-year commitment on the part of the accounting profession through the ARA be reduced from $2,000,000 to $1,000,000 annually by means of contributions through the ARA, with this amount being supplemented by up to an additional $500,000 annually from the $1,780,000 currently held by the ARA in excess of its five-year commitment in 1972. This plan will have the practical effect of reducing the annual contributions of the eight largest accounting firms from $200,000 annually to no more than $50,000 annually, with other contributions through the ARA being reduced as well. The Trustees and the Finance Committee believe that additional public support, including support within the membership of the Securities Industries Association, and increasing publication revenues and royalties from reprint rights will prove sufficient to support the Board's operations at levels commensurate with its increasing technical activities.

The Study speculates that the seven members of the FASB may compromise their professional integrity and issue standards satisfactory to the FAF's major contributors so as not to jeopardize funding, particularly of their salaries. As demonstrated in the next section, all Board members are men with outstanding qualifications and records of service who have

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