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FASB's Crooch takes issue with FEI's CEO on financial statements.

In the President's Page (January/ February 2006), Colleen Cunningham asserted that general-purpose financial statements are trying to do too much. Instead, she specifically asserted that:

* Users are causing the FASB to require more information in the statements because disclosures outside the statements are erroneously perceived as not being as reliable.

* Financial statements should not include forward-looking information, nor should they try to provide a company's value.

* The primary purpose of financial statements should be to reflect management's stewardship to existing stockholders.

* The U.S. is virtually alone in not making stewardship the statements' purpose.

Let's examine those assertions.

First, there is a growing body of academic research indicating that numbers disclosed outside of the statements are in fact less reliable. Moreover, questions raised in our recent stock options project suggested constituents would take more care determining the options expense numbers to be recognized in the financial statements under Statement 123(R) than in the numbers disclosed outside the statements under Statement 123.

Second, I don't know of any standard-setter who wants to turn the financial statements into forecasted statements or have them provide a company's value. But, many of our constituents urge us to bring more information into the statements themselves, such as off-balance-sheet financing. Would that further overload the financial statements?

Third, she implies that only backward-looking information is what stockholders need to assess management's stewardship of the assets entrusted to it. However, such information is not adequate for ascertaining all of the assets management has entrusted to it, whether it has used those assets efficiently, and whether it has preserved or enhanced their value.

Finally, the U.S. is not at all alone in not viewing stewardship as the primary purpose of financial statements. Indeed, the International Accounting Standards Board (IASB) and over 100 countries around the world that have adopted IASB standards embrace the same view.

Despite our differing views on these and other matters in her letter, I very much appreciate the effort to bring the conceptual framework project to the attention of readers, and encourage them to join the debate.

G. Michael Crooch, Board Member

Financial Accounting Standards Board
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Article Details
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Author:Crooch, G. Michael
Publication:Financial Executive
Geographic Code:1USA
Date:May 1, 2006
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