Herz: FASB Will “Guard” Its Autonomy

FASB's chairman admits to concern about "control" issues with the SEC, but pledges to guard FASB's independence.
Marie LeoneApril 26, 2007

In the wake of reports suggesting that the Securities and Exchange Commission is trying to exert more control over accounting standards, Robert Herz, chairman of the Financial Accounting Standards Board, conceded Thursday that recent events had created concerns on the board, but reaffirmed FASB’s independence.

Maintaining independence is a “difficult issue, a difficult balance,” said Herz, speaking at an industry conference sponsored by Pace University’s Lubin School of Business and held in New York. “We get our authority through the [Securities and Exchange Commission] and now we take public money,” explained Herz. “With that comes accountability and oversight, but there has to be respect for independence,” he said.

Most of Herz’s comments focused on the convergence of global financial reporting, and the future of FASB. However, the audience of accounting industry experts also questioned Herz about whether the SEC held too much sway over the standard setter. Earlier this month, was first to report that the regulator held up approval of FASB’s budget until the standards-setting body agreed to give the SEC a more formal role in FASB member nominations.

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Herz, who is in his second term at FASB, has served under three SEC chairmen. At the conference, he was asked whether the current SEC chairman, Christopher Cox, was more concerned about control of FASB than his predecessors. “Chris, or his staff, do operate differently than former [SEC administrations],” said Herz, who conceded that there were “control” issues that “bothered me,” and had upset other FASB members. Indeed, important to all FASB members is the “respect for the process of coming up with better standards, and [that standards] are not dictated,” he added.

Herz noted that FASB’s independence was not a concern during the tenure of Cox’s immediate predecessor, William Donaldson and his chief accountant Donald Nicolaisen, but then seemed to quickly back away from any suggestion that that had changed. “[With] Donaldson and Nicolaisen there was not a problem,” said Herz, who then added, “and that still is the case.” Nevertheless, he said, FASB continues to “guard” its autonomy “carefully.”

Herz also fielded questions about the future of FASB should public companies in the United States get the choice to prepare financial statements using international financial reporting standards (IFRS), instead of U.S. generally accepted accounting principles (GAAP). Earlier this week, the SEC proposed allowing foreign private issuers to file financial reports using either IFRS or U.S. GAAP, and there is speculation that U.S. issuers may also be allowed to abandon GAAP in favor of the foreign standards.

“We are committed to getting to the promised land,” quipped Herz, referring to the accounting standards convergence project between FASB and the International Accounting Standards Board that would yield a single, global standard. But he said a new standard would not spell the demise of FASB. Herz noted that even with the advent of IFRS, other European standard-setting bodies, such as the UK’s Accounting Standards Board, continue to exist. Their charge: providing input on issues related to public companies, and handling standard setting duties for private- and non-profit-company accounting. Moving to a single, less-complicated, and more transparent set of standards are FASB priorities, and convergence goals. In the end, “better information to the markets lifts all boats,” Herz said.

Looking ahead to convergence projects, Herz noted that there will be a major push to decide which accounting measurement attributes — such as fair value or historical costs — to adopt, given that more than 50 measures currently exists worldwide. He also mentioned that financial statement presentation was on the joint project docket, and that later this year FASB would come out with its first discussion documents on the subject aimed at attaining a “common look and feel” for domestic and foreign reports.