Global Business

FASB’s Herz Calls for “Choice with a Timetable”

In Jack Nicholsonese, the FASB chairman asks FEI attendees: "Can you handle principles?"
Marie LeoneNovember 12, 2007

Financial Accounting Standards Board chairman Robert Herz, addressing a group of reporters at the Financial Executives International annual conference, called the way accounting standards have been set in the past “nuts — N-U-T-Z,” as he referred to the excessive guidance and industry-specific rules that have accumulated over the years.

But he claimed that FASB’s current codification project, which aims to reduce complexity in accounting standards, has “corralled the monster,” adding: “We’ve finally got it in a pen.” The move to less-complicated standards is one of the major goals of the convergence project between FASB and International Accounting Standards Board.

Speaking at an FEI panel in New York that included Thomas Jones, vice chair of the IASB, and Russell Golden, FASB’s director, technical application and implementation activities, Herz, as in the past, called for a blueprint or national plan to systematically move U.S. companies off U.S. generally accepted accounting principles and toward International Financial Reporting Standards.

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The global capital markets have “caught up” with the United States, and moving to a single standard makes sense. For example, national stock exchanges may become obsolete in the future, he speculated.

Herz would only support a transition to IFRS from GAAP if the timing for such change were clearly delineated; “choice with a timetable,” he called that approach. He noted that he does not endorse a “two-GAAP system.” Standards cannot be “open-ended without an end-game,” he said. And that end game is “a single set of high-quality standards.”

Regarding FASB’s role after a single standard is adopted, he pointed to France and Germany, which adopted IFRS and still retained their national standard-setting organizations to work with private companies and nonprofits, as well as to provide input and resources to IASB.

Herz said that IASB has two major issues to solve before putting global standards in place. The first is to work out “adopted versions” of IFRS in which different countries agree to use the standards, as long as they can include local exceptions. The second issue is to work out a global funding mechanism for IASB because right now the organization is “grossly under-resourced.”

Regarding whether the U.S. can move toward principles-based accounting, Herz said that preparing and auditing those kinds of standards “takes judgment and spine.”

Quipped Herz, in a somewhat strained impersonation of Jack Nicholson in the movie “A Few Good Men”: “Can you handle principles?”

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