B. Securities and Exchange Commission

Significant to evaluating the effectiveness of the FASB in providing meaningful financial information to public investors are SEC's actions to amend or rescind certain of its own requirements and guidelines in order to conform them to subsequent FASB Statements.

-in ASR 173 and ASR 184, the SEC rescinded its guidelines in ASR 148 concerning the classification of commercial paper and short-term debt expected to be refinanced, and directed that financial statements filed with the Commission after December 26, 1975 follow the criteria set forth in FASB Statement No. 6.

-in ASR 178, the Commission amended its Regulation S-X and rescinded its interpretation and guidelines in ASR 141, in order to conform certain of its requirements respecting accounting for research and development costs to FASB Statement No. 2, issued in October 1974.

-in ASR 181, the Commission amended Article 5A and certain rules in Regulation S-X specifying requirements for the form and content of financial statements and schedules filed by certain companies in promotional, exploratory or other stages of development. Noting that these requirements had been adopted by the Commission when there were no authoritative statements of the accounting profession regarding the appropriate accounting and reporting directly applicable to such companies, and referring to ASR 150, the Commission took its action as the result of FASB Statement No. 7, issued in June 1975.

-most recently, in Securities Act Release No.-5812 and ASR 211, the Commission proposed to amend its Regulation S-X and rescinded its interpretation in ASR 132, in order to conform certain of its requirements respecting accounting for leases to FASB Statement No. 13, issued in November 1976.

These significant actions cannot be brushed off and viewed as evidence that the SEC has "delegated" its accounting responsibilities. Each one of these actions was taken or, in the last case, proposed, in full compliance with the Administrative Procedure Act and with ample opportunity for public comment. The only proper analysis is that an agency of the Federal Government, charged with statutory responsibilities to the public, has determined, after opportunity for public comment, that the FASB's accounting standards provide meaningful financial information for public investors.

C. Other Federal Agencies

Conforming Federal accounting practices to FASB pronouncements has not been limited to the SEC. For example, both the Interstate Commerce Commission and the Civil Aeronautics Board have taken action to incorporate FASB Statements and in some cases APB Opinions into their uniform systems of accounts. In fact, the ICC has been directed to take such action by Congress, as discussed below.

1. Interstate Commerce Commission

The Interstate Commerce Commission has been setting accounting standards for common carriers subject to its jurisdiction for over 70 years.* Since the mid-1950's, the ICC

The Interstate Commerce Act of 1867 authorized the ICC to require annual reports from carriers, and in 1907 the ICC established a uniform system of accounts, which has been revised substantially over the years.

has been conforming its uniform system of accounts in many respects to generally accepted accounting principles, and in recent pronouncements the ICC has relied on the FASB (and its predecessor, the APB) as the authoritative source of such principles. The ICC's Director of Bureau of Accounts is a member of the FASB's Advisory Council.

Since August 1974, the ICC has promulgated a number of significant amendments to its uniform system of accounts to conform to generally accepted accounting principles. In almost every case of revision, the ICC has determined that the pronouncements of the FASB and its predecessor set forth principles appropriate to be adopted by the ICC as being consistent with the purposes of the Interstate Commerce Act and in the public interest.

For example, in December 1975 the ICC's Bureau of Accounts issued two Accounting Series Circulars for the express purpose of conforming the ICC's rules to recent statements by the FASB. Circular No. 154 incorporates FASB Statement No. 6 into the uniform system of accounts. Circular No. 157 establishes standards of accounting for loss contingencies and also incorporates FASB Statement No. 5 into the uniform system of accounts. In October 1976 the ICC's Bureau of Accounts stated that its standards applicable to accounting for marketable securities were those set forth in FASB Statement No. 12, and required carriers to conform to Statement No. 12 or to provide full footnote disclosure of the required information.

In 1974, the ICC made three major changes in its uniform system of accounts, in each case relying on an Opinion of the Accounting Principles Board. These changes required that a statement of changes in financial condition be included in annual reports (APB Opinion No. 19); that investments of more than 20% in non-consolidated subsidiaries be accounted for on the equity method of accounting (APB Opinion No. 18); and that the principles of interperiod tax allocation set forth in APB Opinion No. 11 be followed by carriers subject to its jurisdiction.

Earlier this year, the ICC adopted the principles set forth in FASB Statement No. 13, "Accounting for Leases", as part of its uniform system of accounts.

Finally, Congress, in the Railroad Revitalization and Regulatory Reform Act of 1976, directed the ICC to prescribe a cost and revenue accounting system for railroad carriers in accordance with generally accepted accounting principles, and directed that disclosure in all reports comply with generally accepted accounting principles and SEC requirements.

2. Civil Aeronautics Board

Pursuant to the Federal Aviation Act of 1958, the Civil Aeronautics Board (“CAB") established a uniform system of accounts to be used by air carriers subject to its jurisdiction. Since then, the system has frequently been revised with the objective of conforming it to generally accepted accounting principles.

By way of recent illustration, on December 23, 1976 the CAB revised its method of accounting for changes in the valuation allowance for a marketable equity securities portfolio to reflect the standards established by FASB Statement No. 12. Previously, on

During the 1950's, industry, the accounting profession and Congress expressed concern with respect to the major disparities between accounting principles, particularly for railroads, prescribed by the ICC in its uniform system of accounts, and generally accepted accounting principles. In April 1957 the Legal and Monetary Affairs Subcommittee of the House Committee on Government Operations held hearings on railroad accounting procedures for the purpose of investigating charges that the ICC had not directed that sound accounting principles be followed by the railroads. In response to the hearings, the ICC in 1957 made revisions to its system of accounts to eliminate certain disparities cited by the Committee.

March 9, 1976, the CAB had eliminated self-insurance reserves from its forms to comply with the requirements of FASB Statement No. 5 concerning accounting for contingencies.

Finally and quite recently, the CAB, like the ICC, announced its intention to incorporate the provisions of FASB Statement No. 13 into its regulations for lease transactions.

CONCLUSION

As documented in this Statement of Position and its supporting Exhibits, the FASB acts with integrity, independence and objectivity in establishing meaningful and useful financial accounting and reporting standards. This, and the Board's procedures for broad public participation, its breadth of support and the acceptance of its pronouncements within the private and public sectors, and the SEC's continuing review and participation, are assurances that the FASB's financial accounting standards serve the public interest and are responsive to needs of financial statement users.

The task of setting accounting standards is complex and demanding, and the effort, and risks, in developing and launching a new and untried system without widespread support and cooperation would be substantial and disruptive of progress now being made. The FAF and FASB are confident that the Subcommittee, on review of a complete, accurate and balanced record, will agree that the existing structure with the FASB as the standard-setting body provides the best assurance for continued progress and improved financial accounting and reporting, to the benefit of the public and the Government alike.

For all the reasons discussed and as further documented in Exhibits A through E, the FAF and the FASB respectfully urge the Subcommittee:

1. To reject the Study's recommendation that the Federal Government directly establish financial accounting standards for publicly-owned corporations; and

2. To reject any similar recommendation which might have the effect of replacing the FASB as the authoritative accounting standard-setting body, or reducing its status to that of an advisory or consulting body to others.

FURTHER INFORMATION

The FAF and FASB would be pleased to supplement or elaborate on the matters set forth in this Statement of Position or any of its supporting Exhibits, as may be requested by the Subcommittee in the exercise of its oversight responsibilities.

EXHIBIT A

FINANCIAL ACCOUNTING FOUNDATION

FINANCIAL ACCOUNTING STANDARDS BOARD

FINANCIAL ACCOUNTING STANDARDS ADVISORY COUNCIL

I. FINANCIAL ACCOUNTING FOUNDATION

The Certificate of Incorporation of the Financial Accounting Foundation (“FAF” or "Foundation") creates the Foundation as a non-profit, non-stock corporation under Delaware law with its stated corporate purpose being "to advance and to contribute to the education of the public, investors, creditors, preparers and suppliers of financial information, reporting entities and certified public accountants in regard to standards of financial accounting and reporting; to establish and improve the standards of financial accounting and reporting by defining, issuing and promoting such standards; to conduct and commission research, statistical compilations and other studies and surveys; and to sponsor meetings, conferences, hearings, and seminars, in respect of financial accounting and reporting." The Internal Revenue Service ruled in 1972 and reaffirmed in 1976 that the Foundation is a charitable institution exempt from taxation under Section 501(c)(3) of the Internal Revenue Code.

In the furtherance of its purposes, the Foundation established the Financial Accounting Standards Board (“FASB" or the "Board") to which, by its Certificate of Incorporation and By-Laws, it delegated all power and authority with respect to research, discussion, setting and interpreting of standards of financial accounting and reporting. The Foundation also created a public advisory body, called the Financial Accounting Standards Advisory Council ("FASAC” or the “Advisory Council"), to assist the FASB.

The principal responsibilities of the Foundation's eleven Trustees (listed in Part IV below), who are nominated by the Foundation's six sponsoring organizations* and serve without compensation, are fourfold:

1. To appoint members to the FASB;

2. To appoint members to FASAC;

3. To raise funds for the operation of the Foundation and to approve the annual budgets of the Foundation, the FASB and FASAC; and

4. To review periodically the basic structure of establishing and improving standards of financial accounting and reporting.

Beyond the selection of members of the FASB and FASAC, the Foundation's Trustees have no authority with respect to financial accounting and reporting. The Foundation's Certificate of Incorporation and By-Laws prohibit FAF Trustees from influencing or interfering with the FASB and the exercise of its power and authority in respect of financial accounting and reporting standards, whether directly or through its approval of annual budgets. Additionally, FAF Trustees are prohibited from simultaneously serving on the FASB, its staff or any of its task forces, or FASAC.

* American Accounting Association, American Institute of Certified Public Accountants, Financial Analysts Federation, Financial Executives Institute, National Association of Accountants and Securities Industry Association.

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