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FASB "supermajority" voting stirs controversy.


The trustees of the Financial Accounting Foundation have issued a proposal that would require Financial Accounting Standards Board standards to be approved by at least five members of the seven-person FASB.

A report supporting the "supermajority" voting procedure was issued by the FAF structure committee late last year. According to the report, "Many constituents perceive that standards affecting them |squeak through' by one vote. They find it indefensible that this body of experts (FASB) cannot agree by a supermajority as to what constitutes |generally accepted accounting principles.' This perception cannot be minimized and needs to be addressed by the Trustees."

The structure committee argued that a supermajority requirement would not disrupt the standard-setting process and that FAF constituents tend to favor it. The committee pointed to a letter from the Financial Executives Institute (FEI) to FAF President John Ruffle saying the five-to-two voting requirement "could serve to reduce the perception that a particular standard does not have a high degree of acceptance and support."

The committee also cited a letter from American Institute of CPAs President Philip Chenok to Ruffle that said a majority of the Institute's board of directors favored a supermajority voting requirement for FASB standards.

Opposition voiced. However, two members of the seven-member FAF structure committee voted against the supermajority proposal and issued their own minority report. Charles Horngren, the committee chairman, and Robert Mellin said, "We are troubled by arguments that essentially say that 5-2 will improve perceptions and make the process easier to sell. Whose perceptions? Who is being sold? Despite assertions of some critics of the FASB, the Harris surveys and other evidence gathered by a trustees' review committee have shown widespread support for the FASB and its processes."

Paul B. W. Miller, a professor of accounting at the University of Colorado and author of the book The FASB: The People, the Process, and the Politics, sent a comment letter to the FAF saying, "There is little validity in the Structure Committee's premise that a supermajority requirement would improve standards. A new rule would at best make the process more cumbersome, and that does not appear to be a highly desirable outcome." He added the board's foremost purpose is to serve the public interest and that it can do so "only if it is not controlled by the very groups that it was created to regulate."

Congressional probe. Finally, Congressman John Dingell (D-Mich.), chairman of the House Oversight Committee, questioned whether the FAF has come under undue political pressure from business groups long critical of the standard-setting process. (The proposal is supported by the Business Roundtable, a lobbying group critical of recent FASB standards).

In a letter to Richard Breeden, chairman of the Securities and Exchange Commission, Dingell expressed concern with a campaign that "seems intended to influence the substance of FASB pronouncements, as well as to actually change the FASB's voting requirements and slacken the pace of its work." The letter requests that Breeden provide the subcommittee with the SEC's views on whether a change in the FASB's present voting and operating process is needed and asks the SEC to assess the FASB's recent performance and describe the SEC's efforts to protect the FASB's independence.

Dingell also requested information on communications the SEC has had with outside business groups concerning the FASB's work product and procedures.

The FAF will consider taking action on the supermajority proposal at its April 26, 1990, meeting.
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Publication:Journal of Accountancy
Date:Apr 1, 1990
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