Robert Herz has been reappointed to a second five-year term as chairman of the Financial Accounting Standards board. His second term takes effect on July 1.
Over the past five years, Herz has pushed the accounting standard setter faster and farther than many believed possible. He joined FASB in July 2002, just as the debate over expensing stock options — which had earlier threatened to destroy FASB — was heating up again. Under Herz’s oversight, and against strenuous opposition from Silicon Valley, FASB implemented accounting rule FAS 123R, which requires companies to recognize the cost of stock option awards on their balance sheets.
His tenure has also been notable for his efforts to bring international and U.S. accounting standards closer together. That effort, known as “convergence,” aims to eliminate all significant differences between standards, allowing the financial statements of companies using U.S. generally accepted accounting principles (GAAP) to be compared with those based on International Financial Reporting Standards. One of Herz’s first acts after assuming the chairmanship at FASB was to push for what became known as the Norwalk Agreement, which committed FASB and the International Accounting Standards Board (IASB) to work towards convergence. Herz’s close working relationship with IASB Chairman Sir David Tweedie resulted in a subsequent agreement in April 2005 that all major projects would be conducted jointly by the two boards. That same month, the Securities and Exchange Commission said that it might begin allowing foreign companies to use IFRS to raise capital in the United States as soon as this year, eliminating the current requirement that they reconcile their statements to U.S. GAAP.
While FASB has long leaned towards the use of fair value measurements over historical cost, Herz arguably has also had more success than his predecessors in requiring fair value applications in many areas of accounting, including FAS 123R. And while Herz is often careful to note that he does not necessarily favor the application of fair value to assets and liabilities that lack a ready market, he clearly advocates its application where there is reason to believe the valuations are reliable.
Just over a year ago, Herz also delivered a series of speeches in which he advocated simplifying accounting. To that end, FASB officials call Herz a “staunch champion of simplification and the need to reduce complexity in the financial reporting system,” although that’s a characterization that would likely draw fire from many financial statement preparers. Indeed, under Herz’s first term, FASB began the process of changing pension and lease accounting, both issues that will result in significant changes to corporate financial statements.
Herz has become known for leavening such painful accounting changes with droll, if often pointed, humor. Addressing a roomful of CFOs just 16 months after taking office, Herz recalled FASB’s long-standing reputation for dawdling over accounting rules, then asked the assembled finance chiefs, “How many of you still think we’re moving too slowly?” No hands went up. Likewise, during a conference discussion last November about how to reduce complexity in accounting standards and financial reporting, Herz was asked what he would do differently if he could clear the slate and do everything over again. “I would have been an investment banker,” he replied.
Before joining FASB, Herz was the leader of professional, technical, risk & quality at PricewaterhouseCoopers Americas, and served as a part-time member of the IASB. He is both a U.S. certified public accountant and a U.K chartered accountant.
A 53-year-old native of New Jersey, Herz has lived in Argentina and England. He joined Price Waterhouse in 1974 after graduating from the University of Manchester in England with a B.A. degree in economics. He later joined Coopers & Lybrand, becoming its senior technical partner in 1996.