The standard-setters' advisory panel unveils annual wish-list agenda. What do YOU think the FASB should be doing?
by Rick Telberg
At Large
Pssst! Wanna peek into the future of accounting standards-setting?
Here's a clue: The little known Financial Accounting Standards Advisory Council, an adjunct to the powerful and well-known Financial Accounting Standards Board (FASB, or the Board), based in Norwalk, Conn., has completed a member survey of the top issues. The results could suggest FASB's focus in years to come.
Some old problems still need urgent attention, according to FASAC. "For the third consecutive year," the report states, "revenue recognition topped the list of issues that Council members believe should be the Board's priority."
And the FASAC members are not necessarily as enamored of international harmonization as you'd think from reading the global business press. "FASAC members generally would not automatically assign a higher priority to projects that provide international convergence opportunities," the report said. "Nor do they believe that the Board should always add a project to its agenda because the International Accounting Standards Board does."
In sum, the report said, "Most FASAC members support the Board's efforts to create a codification of U.S. GAAP. Some encouraged the Board, however, to not let the work on the codification affect the progress on other important projects."
To be sure, the AICPA's own Al Anderson said, "None of the Board's current projects should be removed from the agenda. Several current projects are scheduled to be completed in the near term, and new projects can be added to the agenda as that occurs."
Another interesting insight can be gleaned by comparing FASAC's responses to the survey with FASB's:
FASAC Members (out of 28 respondents) vs. FASB Members (out of 7 respondents)
--Revenue Recognition: 21 vs. 5
--Financial Performance Reporting by Business Enterprises: 16 vs. 4
--Fair Value Measurement/Fair Value: 15 vs. 2
--Codification and Simplification: 12 vs. 1
--International Convergence/Short-Term Convergence: 11 vs. 2
Beyond the standards issues themselves, however, FASAC members made several interesting references to impending economic changes necessitating changes in accounting standards.
One respondent pointed out that the burgeoning federal budget deficit will lead to higher interest rates and inflation. Inflationary conditions will stress the definitions of fair value and also leave investors unable to accurately evaluate performance figures. The trade imbalance and "accommodative monetary policy" will aggravate inflationary tendencies, according to John F. Richards, managing partner of Crabtree Ventures.
At the same time, cost pressures brought on pension funding (by inflation crossed with poor market performance) are likely to cause companies to use accounting to juggle numbers and shade the truth. Guidelines may have to be tightened. Cost pressures are also giving birth to new pension plan designs to which current standards may not clearly or reliably apply.
The expectation of future economic change makes it all the more difficult to apply the Board's proposed standard on fair value measurement. Small changes in discount rates can have major effects on value over the long term. In a world subject to disruptive political and economic events, anything from terrorist attacks to commodity shortages can have major effects over the short term.
Said Hal Rogero, representing the Institute of Management Accountants: "Some fair value measures are based upon estimates so far into the future that reliability is a real issue." This is all the more true in an inconstant environment.
The imminence and inevitability of economic change make it all the more important that FASB continue its effort to produce standards that rely more on principles and the spirit of the standard than on detailed guidelines and the letter of the law. Principles accommodate change far better than bright-line rules do.
The FASAC survey didn't say it, but one might reasonably conclude that any attempt to deal with economic change by heaping more rules on old rules could not only confound preparers and auditors but confuse investors. One result: the kind of volatility normally associated with an unsure environment.
FOR THE FULL FASAC REPORT: Click here, http://www.fasb.org/fasac/resultspg2004.shtml
