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FASB's parent wants the board to retain power and says there should be more than one set of financial reporting standards.
David M. Katz, CFO.com | US
November 16, 2011
Firing back against a Securities Exchange Commission proposal to slash the Financial Accounting Standards Board's authority in setting accounting standards, FASB's parent organization has proposed a system that puts the standards board still squarely at the helm.
Further, in contrast to the goal of achieving a "single single set of high quality globally accepted accounting standards" proposed by the SEC staff, the Financial Accounting Foundation would favor "highly comparable (but not necessarily identical) financial reporting standards [for] the foreseeable future," according to a fact sheet provided by FAF, which oversees the Governmental Accounting Standards Board as well as FASB.
The issue of a possible diminishment of FASB's role if the United States decides to go to a more international system first arose in the wake of a May 26 Securities and Exchange Commission staff paper that looked at a possible framework for IFRS adoption. The paper described a "condorsement" (combining the words convergence and endorsement) model for the incorporation of international financial reporting standards in the United States.
Under the condorsement plan, FASB would continue to hold sway in this country over a convergence of U.S. generally accepted accounting standards and IFRS during a transition period of five to seven years. But once convergence has been achieved, FASB would merely endorse the standards the International Accounting Standards Board has developed. "Most significantly, the FASB would participate in the process for developing IFRS, rather than serving as the principal body responsible for developing new accounting standards or modifying existing standards under U.S. GAAP," said the staff paper.
The FAF trustees, however, are having none of it. Under their approach, the United States and the SEC "will continue to exercise a leadership role in the global harmonization of financial reporting standards based on the common platform of IFRS, while retaining sovereign authority in financial reporting standard setting for the U.S. capital markets," according to the fact sheet.
In a November 15 letter to the SEC, FAF chairman John J. Brennan wrote that reducing FASB's role in setting U.S. financial reporting standards "may weaken the positive leverage that U.S. GAAP and U.S. standard setting have provided to improving accounting standards for investors in the world's most robust and transparent capital markets."
FAF also disputed the SEC staff's proposed goal of achieving one set of global accounting standards. Instead, the organization believes that "a more practical goal for the foreseeable future is to achieve highly comparable (but not necessarily identical) financial reporting standards among the most developed capital markets that are based on a common set of international standards."
In a statement, Brennan asserted that "enhancements" FAF's proposal in "will improve the processes outlined in the SEC staff paper and, importantly, increase acceptance of the plan by constituents in the United States." A spokesperson for the organization said it would not comment further.