By that, I mean there should be practice groups around the country who, by State or by geographical area, will have policy proposals and input developed by smaller sized practitoners, by larger regional firms, if you will, and let it all come together in periodic exchange whereby these groups' input, with elected representatives, will decide what the profession should be doing rather than this policy group in the AICPA. I think the AICPA should be in effect a holding company and let all the majority of input and exchange and housekeeping within the profession go down to a grassroots level. I don't see it coming, but it might with pressure. Mr. SATIN. I would like to respond to that. I, myself, would not like to see a separate organization. I think it might be confusing to the public to have two separate bodies formulating standards and principles. I think that Mr. Olsen, in a letter he sent out to the society members recently, said that those who come forth now, while the profession is being attacked, do it a disservice and actually create divisiveness. I think therein lies part of the problem. I don't think he realizes that the divisiveness already exists and that what we are trying to do is making it cohesive and the lack of seeing that particular point by the duly created bodies of the society is what causes the problem. It would seem to me that if they would just recognize the fact, if they would deal with it, if they would put more things to the groups. we could move ahead. There was an issue that came up of specialization a few years ago when I was on the board of directors of the local chapter and that really got down to the grassroots level. It was beaten down because at the grassroots level they didn't want it, and they saw it for what they thought it was to be. It just proves to me that if we rise up strongly enough that we can do something. But it shouldn't have to be that way. The apparatus should be there in place for us to do what has to be done, for us to have a chance to say what we have to say. I was reading over the bylaws on the way up here and one of the things they said about the bylaws change 7 or 8 years ago was that it provided for quicker machinery by taking less items to the membership. I think that was a step backward rather than a step forward. But to have two separate groups would be hard. The FASB principle is to provide rules and regulations for statements to third parties. We have to follow them, as we were saying before. But our statements are not primarily for third parties. The small firms' statements are primarily to help management run its business. Some of them go to banks and some of them don't. Pimarily, it is for his consumption and to throw onto that statement some of the things they ask us to do just doesn't make sense. There is a small gap committee setting up accounting principles for small firms. That committee has been functioning for over 3 years. and I understand with one-half of a staff person from the AICPA, which obviously has gotten very low priority. We talked all day about how FASB only put out some 65 findings in the last 4 years and here are 3 years and one committee can't get the first thing out yet. This seems to me to be the priority situation. It is a little mixed up. Senator PERCY. Mr. Watson. Mr. WATSON. I would like to just comment briefly. I agree with the general comments of Mr. Satin. I think that what the institute needs to be doing is communicate and allow participation for more of its membership. Examples of an effort to do that are this gap in the small business and the small business development committee. But they need the specific support of the leadership, of the board and the council and the President. Senator PERCY. I think, Mr. Chairman, the testimony of the panel. has been very helpful today. It is so helpful that I think when we hear our other witnesses, it would be highly desirable to ask FASB and AICPA to prepare responses to the suggestions that we have had, send those in to us, and come back in for a discussion once again. I think that would perhaps be a good wrapup. They can take into account suggestions that have been made to them in the meantime then. Senator METCALF. I want to find out a little bit more about the AICPA and its input into State examining boards. Is there any attempt to have a uniformity of professional standards, Mr. Watson, in the examining board? Mr. WATSON. As a member of a State examining board, I would like to answer that. The AICPA has very little, if any, direct input into the State examining boards. There is a parallel organization called NASBA, the National Association of State Boards of Accountancy, that provides the overall coordination and input. An example of what they are doing is there were 15 States last week and this week that gave what we call an exam critique. There were college professors who went over each problem that was written in the last exam for all unsuccessful candidates in an attempt to explain to them why they weren't successful. That is done through the NASBA, not through the AICPA. Senator METCALF. That is done through the National Association of State Boards of Accountancy? Mr. WATSON. Right. Mr. ELLIOT. However, it is true I believe that the AICPA does develop and present to the States a uniform C.P.A. examination which is used by most States and which is even graded by a service within the AICPA. Senator METCALF. Is that your experience in Montana? Mr. ANDERSON. It is a uniform examination nationwide, and it is prepared by the American Institute of C.P.A.'s. It is graded by them and that is the sole criterion, other than the experience of occasional requirements set by each State. Senator METCALF. I want to thank you all. You have been very patient and waited a long time while the hearing has gone on. I think it has been well worthwhile to have this hearing and to have you here to participate. I am very grateful to you. We will continue to Senator Percy has suggested we get some more information from the FASB and the institute. We will do that, and we will share it with you. If you want some of those materials that are not publicized, I will put them in the record. A few years ago, I couldn't get the nominee list from the corporate secretaries association, so I got hold of a list and put it in the Congressional Record, and now it is for sale publicly. So I won't do it anymore. Thank you very much. Mr. WATSON. Thank you. Mr. ELLIOTT. Thank you. Senator METCALF. The next meeting of this subcommittee on this problem is the 10th of May. [Whereupon, at 1:25 p.m., the subcommittee recessed, to reconvene on Tuesday, May 10, 1977.] ADDITIONAL MATERIAL FROM WITNESSES FINANCIAL ACCOUNTING FOUNDATION, Hon. LEE METCALF, Chairman, Subcommittee on Reports, Accounting and Management, Committee on Governmental Affairs, U.S. Senate, Washington, D.C. DEAR SENATOR METCALF: At your Subcommittee's accounting hearings on April 21, 1977, we testified that the Trustees of the Financial Accounting Foundation ("Foundation" or "FAF") and the Financial Accounting Standards Board ("Board" or "FASB") would meet jointly on May 26, 1977 to consider the recommendations in the Report of the FAF's Structure Committee. Mr. Way also testified that revisions to Personnel and Conflict of Interest Policies for FASB Members were being considered by an FAF Committee and that the FAF's Trustees had authorized implementation of a new financing plan for 1978 and subsequent years. We agreed to supplement the record of the hearings as promptly as practicable as to the progress that had been made with regard to these matters, as well as on the question of adopting "sunshine" procedures for FASB meetings. Enclosed is a Supplemental Statement for the record on behalf of the Foundation and the Board reporting on action to date. We respectfully request that this letter and Supplemental Statement be included and made part of the record of the Subcommittee's recently completed hearings. We believe that you and your Subcommittee will agree that, in a short period of time, the FAF's Trustees and the FASB alike have made significant progress in implementing the recommendations of the Structure Committee, as well as being responsive to other concerns expressed at the hearings. While our Supplemental Statement discusses this in detail, by way of a brief summary action has been taken or is progressing in the following general areas: 1. Meetings of the FAF's Board of Trustees, the FASB, the Financial Accounting Standards Advisory Council ("FASC"), the FASB's Screening Committee on Emerging Problems, and FASB task forces will be held in the "sunshine". 2. A majority of the recommendations, including many of the most significant. contained in the Report of the Structure Committee have been agreed to by the FAF's Trustees and the FASB, and the remaining recommendations are currently under consideration. The Trustees have appointed a joint FAF/FASB Action Committee to be responsible for consideration of the Report's remaining recommendations, and to report to the Trustees. The FAF's Trustees have scheduled special meetings in July and August, in addition to their next regular meeting in September, in order to assure continuing oversight of these and such other matters as may arise. 3. Affirmative steps are being taken to ensure greater participation by repre 4. The FAF's Trustees have approved revisions to the Personnel and Conflict of Interest Policies applicable to FASB Members and staff. Among other things, the revised policies will cover four additional FASB technical staff positions; require scheduling of all securities investments in excess of $1000, with such schedules available for public inspection; prohibit receipt of gifts and entertainment, except from family and in comparable circumstances; and contain broader and more specific conflict of interest rules. The other restrictions in the former policies will be continued. 5. The Foundation's financing plan for 1978 and subsequent years is being implemented, and the Accounting Research Association of the AICPA is currently restructuring its dues schedule to reflect this plan. The FAF's Trustees view this new plan as significant in terms of enhancing the FASB's stature and eliminating any appearance of "domination" by the major accounting firms. 6. FAF and FASB efforts to implement other recommendations for change are continuing and will continue. For example, the FAF's Trustees have directed the Structure Committee to develop a charter of specific proposals and procedures for a reconstituted and revitalized FASAC under an independent Chairman. The FAF's Selection Committee is engaged in an active search and evaluation of qualified candidates to fill the FASB vacancies which will occur on January 1, 1978, including the Chairmanship, and is also seeking and evaluating qualified candidates, including a prospective independent Chairman, for the new FASAC. We trust that you and your Subcommittee will agree that these actions demonstrate the willingness of the FAF's Trustees, the FASF and the private sector to cooperate fully with the Subcommittee and to act constructively and promptly as appropriate in the common goal of improving the structure and processes for establishing financial accounting and reporting standards in the public interest. In conclusion, we wish to compliment you and the Subcommittee and its staff for the level at which the hearings were conducted, and the broad interest they engendered throughout the profession and large segments of the public. The hearings served an important public purpose, and we share your expectation that the accounting profession and the private sector will act constructively in the coming months to deal effectively with those matters on which your hearings focused attention. Very truly yours, Enclosure. FINANCIAL ACCOUNTING FOUNDATION, ALVA O. WAY, Chairman, Committee on Gov- FINANCIAL ACCOUNTING STANDARDs Board, FINANCIAL ACCOUNTING FOUNDATION, FINANCIAL ACCOUNTING STANDARDS BOARD, SUPPLEMENTAL STATEMENT FOR THE RECORD This Supplemental Statement of the Financial Accounting Foundation ("Foundation" or "FAF") and the Financial Accounting Standards Board (“Board” or “FASB") is submitted to supplement the record of the accounting hearings conducted by the Subcommittee on Reports, Accounting and Management, Committee on Governmental Affairs, United States Senate. At the hearings on April 21, 1977, Alva O. Way, Chairman of the FAF Committee on Government Relations, and Marshall S. Armstrong, FSAB Chairman, testifying on behalf of the Foundation and the Board, agreed to supplement the record of these hearings as promptly as practicable following the joint meeting of the FAF's Trustees and FASB on May 26, 1977 as to the progress that had been made with regard to the question of adopting "sunshine" procedures for FASB meetings; the recommendations in the Report of the FAF Structure Committee: possible revisions to personnel and conflict of interest policies applicable to the FASB; and implementation of the FAF's financing plan for 1978 and subsequent years proposed by the FAF's Finance Committee earlier in 1977. I. ADOPTION OF "SUNSHINE" The FAF's Trustees have taken action to amend the Foundation's By-Laws to provide for public meetings for the FASB and the Financial Accounting Stand Accordingly, meetings of the FASB and FASAC, as well as the FASB's Screening Committee on Emerging Problems and FASB task forces, will be open to the public and held in the "sunshine", as soon as appropriate procedural matters can be worked out and implemented and in any event by January 1, 1978. Similarly, meetings with outside parties will be conducted or reported in aecordance with "sunshine" procedures. The procedural details, including limited exemptions, are being developed with a reference to the "Government in the Sunshine Act" and in light of the particular circumstances and operations of the organizations involved, and will be contained in revised FASB Rules of Procedure and/or other revised operating policies and procedures as appropriate. Similarly, the FAF's Trustees have voted to open their meetings to the public on a comparable basis. II. REPORT OF THE STRUCTURE COMMITTEE A majority of the recommendations, including many of the most significant. contained in the Report of the Structure Committee have been agreed to by the FAF's Trustees and the FASB, and the remaining recommendations are currently under consideration. The Trustees have appointed a joint FAF/FASB Committee to be responsible for consideration of the Report's remaining recommendations, and to report to the Trustees. The FAF's Trustees have scheduled special meetings in July and August, in addition to their next regular meeting in September, in order to assure continuing oversight of these and such other matters as may arise. Implementation of the recommendations in the Structure Committee Report entail, depending upon the circumstances, amendment or revision of one or more of the FAF's Certificate of Incorporation, By-Laws, the FASB's Rules of Procedure or other operating policies or procedures. For convenience, the recommendations of the Structure Committee Report are reordered in the following discussion inasmuch as some fall into related groups and are more easily discussed and considered in the same context. A. Openness and relationships with the constituency-findings Nos. 1, 2, 4, 5, 14 and 15 As discussed above, the FAF's Trustees have taken action to amend the ByLaws to provide for FASB and FASAC meetings in the "sunshine", and, as a result, the FASB will revise its Rules of Procedure and operating policies and procedures governing its meetings and those of its Screening Committee on Emerging Problems and task forces. Similar procedures will be adopted for FASAC meetings. The FAF Trustees will also conduct their meetings in the "sunshine". Implementation of "sunshine" will occur as soon as practicable. and in any event by January 1, 1978. While the Report of the Structure Committee did not recommend as such adoption of open meeting proposals modelled after the "Government in the Sunshine Act", the FAF's Trustees have concluded that the first step to full implementation of Findings Nos. 1, 2, 4, 5, 14 and 15 should be "sunshine", and that with sunshine most other aspects of these findings would most rapidly and best evolve. Additionally, certain other specific steps are now underway to implement these recommendations. Thus, the FAF's Selection Committee is considering candidates for FASC, including the position of an independent Chairman, to assure that qualified representatives of all of the Board's constituencies are represented and involved in the standards-setting process. In particular, increased efforts are being given to assure that representatives of small businesses and small accounting firms, among others, are invited to join FASAC. While consideration was given to the creation of a separate group comprised principally of representa tives of such constituencies, the Trustees and the FASB concluded that the views of these constituencies would be most effectively heard and considered if increased representation occurred within a restructured and revitalized FASAC. It was concluded that these constituencies would not likely command the respect or receive the attention they deserve and likely would not be regarded as an integral part of standards-setting if they were represented by a separate body outside the recognized structure. To strengthen the role of FASAC, the FASB is considering reconstituting its Screening Committee on Emerging Problems on a separate subcommittee of FASAC. Similarly, the Trustees and the FASB believe that those with particular experience with the problems and concerns of small business and small |