Business wants realism and pragmatism.

Business wants realism and pragmatism Financial Executives Institute has had a long relationship with the FASB and indeedwas one of the founding members of the Financial Accounting Foundation (FAF), which in turn established the FASB. Through its support of the FASB, FEI has endeavored to keep standard setting in the private sector.

Representatives of FEI's Committee on Corporate Reporting (CCR) meet quarterly with the FASB to discuss a wide range of issues, and for the past year or so a Board member has sat in on all CCR meetings to see the due process and diligence that FEI devotes to its positions. And FEI's Executive Committee meets once a year with the FASB. So, as you can see, there is significant interaction between FEI and the FASB.

The business community and FEI in particular have openly expressed their views about the Board and the standard-setting process. We have criticized the Board and its staff for not giving sufficient consideration to the views of constituents, and for being insensitive to the burden placed on preparers and users when standards are changed. Many feel that the Board issues new standards too frequently, and some critics say that many standards do not meet reasonable cost/benefit tests, are too theoretical, and are difficult to implement.

In 1985, FEI, concerned with the direction in which the Board was headed, formed a blue-ribbon task force to explore the role of the business community in the development of accounting standards. The task force's report stated basically that, if the standard-setting process is to remain the responsibility of the private sector, the business community must play a more active and direct role in that process.

Even though the report contained excellent suggestions, the FASB has been slow in implementing them. One example will illustrate my point. FEI recommended that the FASB conduct a field test of all major proposed statements. Had the FASB followed FEI's advice and field tested the statement on income taxes, it might have averted the controversy that statement has caused.

I'd also like to point out that FEI has openly supported a more formalized agenda-setting process for the FASB, more effective use of task forces, publication of preliminary views, post-enactment reviews, and, of course, field tests and super-majority voting.

In the latter part of the 1980s, the Busness Roundtable's task force on accounting principles also became concerned with the direction of the FASB. After meeting with a number of representative groups, the task force proposed that an independent group be set up to review the FASB's actions. This proposal was neither reviewed nor endorsed by FEI, and it was immediately vetoed by the SEC.

During this period, the FAF itself recommended establishment of an oversight committee composed of members of its board of trustees. FEI supported the FAF's recommendation, and, in June of 1989, the Foundation approved the formation of a committee of trustees to monitor the FASB's standard-setting activities, using the Board's stated mission as its guide.

I think it's appropriate to take a moment to review the precepts of FASB follows in the conduct of its activities, as outlined in its mission statement:

* To be objective in its decision-making and to ensure, insofar as possible, the neutrality of information resulting from its standards;

* To weigh carefully the views of its constituents in developing concepts and standards;

* To promulgate standards only when expected benefits exceed perceived costs;

* To bring about needed changes in ways that minimize disruption to the continuity of reporting practice; and

* To review the effects of past decisions.

Some would question whether the Board has fulfilled its mission statement over the past few years.

In conclusion, FEI has attempted to work with the FASB in a constructive way to enhance standard setting. As the FASB considers pending statements and its future direction, it needs constantly to keep in mind that precepts in its mission statement. FEI thinks the establishment of the FAF oversight committee is an important step and encourages the trustees to hold the FASB to those precepts.

The FAF's restitution of the 5-to-2 majority vote is another important step. We feel that the super-majority vote enhances the perception that standards have a high degree of acceptance and support. It also minimizes the issuance of changes when accounting standards encounter problems of general acceptability and do not meet the FASB's own criteria as set forth in its mission statement.

We also feel that the FASB needs to give appropriate weight to realism and pragmentic considerations in making its decisions. These considerations should carry as much weight in the FASB's decision-making process as conceptual considerations have in the past.