Release IMMEDIATE News Release Financial Accounting Standards Board High Ridge Park, Stamford, Conn 06905 Telephone (203) 329-8401 Contact: Robert Van Riper STANDARDS BOARD ADDS TWO NEW SUBJECTS TO ITS TECHNICAL AGENDA: INTERIM FINANCIAL REPORTING, CLASSIFICATION OF PREFERRED STOCK STAMFORD, CONN., Nov. 19 - The Financial Accounting Standards Board has added two new projects to its technical agenda. One relates to interim financial reporting and the other will deal with reporting long-term debt and fixed maturity preferred stock. The Standards Board was asked to consider these matters as current accounting problems needing early resolution and added the projects to its agenda after obtaining recommendations from the members of its Screening Committee on Emerging Problems. The project on interim financial reporting will involve reconsideration of Accounting Principles Board Opinio: No. 28, "Interim Financial Reporting." The project will address the question of whether an interim financial reporting period should be considered as a discrete period that stands alone or as an integral part of the annual reporting period as well as a number of other issues. This question is particularly important to companies in industries having seasonal operations. -2 Securities and Exchange Commission to require increased disclosure of interim financial information next year. The project on long-term debt and fixed maturity preferred stock will be relatively narrow in scope, dealing mainly with disclosure of payments scheduled for preferred stock and longterm debt, including sinking fund provizions. The project also will address the appropriate balance sheet classification of a preferred stock sinking fund deposit or redemption schedule within one year. These questions have become significant because some companies whose debt-equity ratios have deterioIated to a point where they have difficulty in issuing debt now issue preferred stock having a limited life. Based on recommendations made to the Board and advice of the screening committee, the Board concluded that these problems require early resolution. hence, the Board does not expect to issue discussion memoranda but may hold public heatings and will issue an exposure draft for public comment on each project before issuing final Statements of Financial Accounting Standards, After completing my letter of June 21 to you, I received from Robert W. Haack, Lockheed's Board Chairman, the "Exhibits to the Report of the Special Review Committee" of the Lockheed Aircraft Corporation. Pages 65 through 71 contain "Additional Information Concerning the Audit Punction... Lockheed's Outside Auditors," Had I known last year that which is disclosed in these pages my testimony before the Moss Committee on this matter and my letter to you would have moved to impeach the auditor's independence in the Lockheed engagement. Even after reading the testimony from Mr. W. G. Findley, the Arthur Young & Co. ("AY") partner responsible for the Lockheed audit, before Senator Church's Committee on Multinational Corporations, I did not perceive the extent and gravity of AY's direct and overt awareness of the "Lockheed Syndrome," and the ways in which the firm capitulated to the client. For example, at page 69 of the Special Review Committee Exhibits we are told of an "executive session" of Lockheed's audit committee held on March 4, 1973. According to the Exhibit, "Notes prepared for the meeting by Findley stated that, with respect to the Japanese currency payments, 'They are material amounts of money and subject the Company to... incalculable consequences with respect to the L-1011 program' *** The double-asterisk reference included in the Exhibit follows: -2 Honorable Lee Metcalf, Chairman June 24, 1977 Concerning the potential "incalculable That AY qualification included in the 1972 report (and carried forward to later years) is known in the vernacular as CYA-rhetoric -whereby the words are designed potentially to exculpate the writer and where he hopes they will lose their meaning when they reach the reader. This is a quality which is disdained by those of us committed to full and fair disclosure by independent certified public accountants. So it is that the "whole truth" was apparently not disclosed to Senator Church's Committee two years ago; I wonder whether we have the "whole truth" insofar as AY is concerned even now. Adding to the perversity of the situation is the fact that it was AY which was called upon (for a very substantial fee) to conduct a "peer review" of another member of the Accounting Establishment -with a report which the subject firm announced to the press with much fanfare. This situation makes a mockery of the peer review recommendations being advanced by the Establishment with approbation from the SEC. It should be evident by now that within the "Club" a kettle does not call the pot black certainly not openly and on the record. I find it most incredible that in the light of all AY knows of its involvement that the firm still, in mid-1977, seeks to justify -3 Honorable Lee Metcalf, Chairman June 24, 1977 I become indignant and outraged at the thought that AY deems it a matter of right, as a member of the Accounting Establishment, to come before a committee of the United States Senate to inform you regarding the good, the true and the right in the accounting profession. Let there be a complete and unfettered probe of AY's responsibility in the Lockheed Syndrome. Let it be conducted by a Special Review Committee committed to judging that firm's performance, rather than merely reciting the facts of its involvement to the extent these facts may be tangential to some other investigation (e.g., that for which Lockheed's Special Review Committee was established). |