The FASB - AcSEC relationship: cooperation or conflict?

The following is adapted from a speech by Dennis R. Beresford, chairman of the Financial Accounting Standards Board and past chairman of the American Institute of CPAs accounting standards executive committee, concerning the cooperation that is the cornerstone of the FASB-AcSEC relationship. The speech was delivered at the AICPA 18th National Conference on SEC Developments and appeared in its entirely in the January 23, 1992, issue of the FASB Status Report.

Concern about the FASB-AcSEC relationship first heated up in 1977 and 1978. The AICPA issued several statements of position, causing

* Some AcSEC members to become concerned about SOPs' uncertain authoritative status.

* The Financial Executives Institute, among others, to protest that AcSEC was becoming a competing standard setter.

* The FASB to become concerned the AICPA wanted to regain some of the authority it had granted the FASB.

* The Securities and Exchange Commission to report to Congress that the FASB should deal with specialized industry problems.

These factors all contributed to FASB's plan to (1) rewrite in FASB format all SOPs, AICPA industry accounting guides and accounting portions of its industry audit guides and (2) issue them as standards after public comment.

I now believe the FASB wasted a lot of time and effort issuing statements that merely extracted AICPA literature. A any rate, the extraction process ran out of steam and came to a halt in 1982 - before it was complete.

Because AcSEC was discouraged from issuing SOPs in most cases, the Institute began devoting more of its attention to issues papers, identifying problems for the board rather than trying to fix them directly.

Issues papers, intended as neutral documents, soon included advisory conclusions (AcSEC votes on the various issues). Some considered issues papers with advisory conclusions another form of generally accepted accounting principles - perhaps only slightly less authoritative than SOPs.

Just about the time I joined the FASB in 1987, AcSEC completed an issues paper on accounting for options. As was the usual procedure, AcSEC sent us that paper and urged us to add a project on options to our agenda. But even before sending us the document, the Institute had published it and sold copies. Also, a summary article appeared in the Journal of Accountancy. We sensed the AICPA was attempting to established GAAP in at least an indirect way.

The board reviewed the options issues paper at a public meeting in February 1987, deciding to deal with accounting for options as part of the financial instruments project. We also believed some advisory conclusions conflicted with FASB-established GAAP, so we reiterated that existing authoritative standards had to be followed.

The board,which agreed advisory conclusions could create confusion among practitioners, urged AcSEC to delete them in the future. However, we also acknowledged the FASB probably could not keep up with the need for specialized industry guidance and in a significant change from our 1970s position, encouraged AcSEC to consider SOPS when appropriate. AcSEC could identify a pressing issue early argue for dealing with it and stand ready to develop an SOP as guidance - unless we said we would add it as a project to our agenda or we thought it conflicted with another of our projects.

When the AICPA board of directors was asked to approve a 1989 proposal to remove advisory conclusions from issues papers, AICPA board members balked. They instead directed AcSEC to9 allow, but not require, conclusions. In February 1990, the board of directors also approved a change in AcSEC 's operating procedures to allow AcSEC to issue a document even if the FASB objected. While AcSEC always had the implicit authority to issue a pronouncement over the FASB's objections, this action made the authority explicit and led to unfortunate publicity about disagreements between our organizations.

A complete separate, unrelated event, the AICPA's revision of the GAAP hierarchy, began in 1990 at the specific request of the FASB and the Governmental Accounting Standards Board. (For a detailed description of the hierarchy, see " Special Report: Is There a Gap in Your GAAP Library ?", JofA, Mar. 92, pages 24-27.) I believe its most important outcome is the provision that AICPA documents will trigger required accounting changes in may more cases in the future.

For example, if AcSEC issues an SOP on a subject the FASB hasn't addressed, a company must make an accounting change to adopt the SOP position. This differs considerably from the old hierarchy, which gave those AICPA documents only preferability status.

There is another important aspect of the revised hierarchy: Only documents formally cleared by the FASB are given this enhanced status. The new hierarchy does not mention SOPs or other documents issued over our objection; therefore, any such uncleared documents do not require accounting changes.

The FASB is active in all development phases of any AICPA document, but in mid-1990, the AICPA considered reducing the FASB's involvement's to try to speed up certain document's issuance. Among other things, it wanted to seek only our formal clearance of final documents. After we expressed our misgivings, however, the AICPA agreed to retain all existing FASB involvement.

I'd like to quote from an interview I gave the Journal right after my appointment to the FASB: "On one hand, you might argue the FASB should be the sole standard setter and issuer of pronouncements. On the other hand, it's not feasibel, because of limited personnel, for the FASB to do everything. As long as there are good open lines of communication between the two organizations, the AICPA should continue to play an important role."

After five years at the FASB, I have nor reason to change my views. Cooperations is the cornerstone of our relationship with AcSEC, I plan to do my best to see it continues.