SEC, FAF and others clash on independence.

Securities and Exchange Commission chairman Arthur Levitt and J. Michael Cook, chairman of the Financial Accounting Foundation, have been continuing their discussion over the composition of the FAF board of trustees (see "Levitt Wants FAF Board Reorganized," JofA, Jun.96, page 4).

The Government Finance Officers Association (GFOA) and the Financial Executives Institute (FEI) also have made clear their strong opinions in letters and press releases. Cook's and the GFOA's comments were in response to Levitt's proposal to change the composition of the FAF, which ultimately affects the composition of the Financial Accounting Standards Board. Cook was also responding to FEI proposals that he felt would impair independence-proposals that Arthur Levitt also rejected.

On May 20, Cook, who is also the chief executive officer of Deloitte & Touche, wrote two separate letters to Levitt and P. Norman Roy, FEI president, in which he replied to Levitt's claim that the composition of the FAF board affected its ability to oversee the FASB, saying, "We emphatically do not agree." In responding to the FEI's suggestion that the FASB's agenda be controlled by an independent third-party organization, he said that "the trustees have specifically considered and rejected your recommendation" because such a change would be inconsistent with an independent FASB. He did, however, invite the FEI to continue making suggestions to improve the FASB's efficiency and effectiveness.

Local government representation

In a public statement on May 19, the GFOA also took issue with Levitt's proposals to change the makeup of the FAF, particularly with his recommendation to reduce the presence of state and local government representatives. "In meetings with the GFOA and others, Levitt has insisted emphatically and repeatedly that he will not accept any FAF trustee from state or local government, either elected or appointed, as a bona fide representative of the public interest" said the GFOA. In fact, the GFOA said elected state and local government officials were especially well-qualified to serve the public interest on the FAF board. It also assailed proposed SEC involvement in FAF appointments, citing too much federal intervention, and called for cooperation in the standard-setting process rather than "federal fiats."

What is independence?

"Chairman Levitt and I don't have a different objective; we're both committed to an independent and effective FASB," Cook told the Journal. "We do have a difference of opinion on how we govern that process." Cook said he and the FAF were uncertain about who exactly Levitt thought was independent enough to serve on the FAF board: "We don't quite understand his criteria. Our view is that all of us on the FAF serve in the public interest, but we accept the fact that some of us come from and represent sponsoring organizations."

At Cook's invitation, Levitt met with the FAF on June 4 to discuss the independence issue further. Although nothing specific came out of the meeting, Levitt said in a June 6 speech to the SEC and Financial Reporting Institute that "in recent days the SEC and the FAF have made some progress toward resolving our differences.

The November election is another factor in the controversy: Because the chair of the SEC is a presidential appointee, Levitt may not be a player at the year's end. Also, Dennis Beresford will be retiring as chairman of the FASB in June 1997, and there is no clear successor at this time.

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