SEC calls for more efficient FASB but rejects stronger outside influence.

The Securities and Exchange Commission has made public its concern that the Financial Accounting Standards Board is taking too long to draft standards. However, the commission strongly supports an independent FASB and says it will resist any move to increase the business community's influence on the FASB's standard-setting process. The SEC has authority to set accounting and reporting standards for publicly held companies, but it has given the FASB the authority to set these standards since 1973, with SEC oversight.

SEC chief accountant Michael H. Sutton told members attending the American Institute of CPAs national conference on current SEC developments that the commission was troubled by the pace of progress on the FASB's derivatives and hedging project. "I don't question for a moment the importance of constituent input and thoughtful consideration," said Sutton. "But as I have observed the board's processes over the years, it seems to me that the extent of those processes may have passed the point at which the delay involved outweighs the benefit received."

Sutton's is not the first complaint that the FASB standard-setting process is too sluggish. A January letter from P. Norman Roy, president of the Financial Executives Institute, to J. Michael Cook, chair of the Financial Accounting Foundation and chief executive officer and chair of Deloitte & Touche, said the FEI believed the FASB standard-setting process was "broken and in need of substantive repair." The letter suggested corrective measures that drew strong public response from people such as SEC chair Arthur Levitt and FASB chair Dennis R. Beresford. Most notably, the FEI called for independent oversight of the FASB project agenda. "A subcommittee of the FAF or the Financial Accounting Standards Advisory Council with representatives from the various constituencies of the FASB might be an effective response to this concern," said Roy. He also suggested that specific project budgets and time lines be formally established for all FASB projects. "If a broad consensus cannot be built within a reasonable timeframe, a process should be in place to resolve the conflict or scrap the project."

Defending independence

"I believe that a strong and successful FASB is in the best interest for all who have a stake in financial reporting," said Levitt. He said that to be successful the FASB must carry out its mandate in the face of strong disagreement on virtually every important issue. He said the SEC would continue to look at how the FASB standard-setting process could be improved, but that he would not support any initiative by any group that would undermine the FASB's effectiveness or its independence, whether it be agenda setting or involvement in technical decision making.

"We were pleased with Levitt's letter," said Beresford. "He told us he supports the private sector standard-setting process, but that the SEC could not continue to support it if the FASB cannot get things resolved within a reasonable time period." Beresford told the Journal that he felt the FASB has made good progress on the derivatives project since the fall of 1995 and that he expected an exposure draft by late June.

The SEC's Sutton said he applauded the FASB's efforts to review its organization and activities in connection with a substantial strategic planning project. He also said he supported Levitt's position and that he opposed any suggestions to undercut the FASB's effectiveness and independence.