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Private-Sector Standard Setting.

As finance professionals, we should maintain a keen interest in the rules and principles that govern our profession and activities, especially the establishment of accounting standards. Although the Securities Acts of the 1930s gave the authority to the Securities & Exchange Commission (SEC) to set accounting rules, that body has delegated it to the private sector. For almost 30 years--since 1972--it has been the responsibility of the Financial Accounting Standards Board (FASB). Since the '30s, the FASB and its predecessors have been overruled only twice by the SEC and/or Congress. The first occasion involved accounting for the investment tax credit, and the second was oil and gas accounting.

It would be easy to say this speaks well for the private sector continuing to establish rules for the profession. But four instances in recent years should raise our concerns.

The first occurred when the FASB proposed to require that compensation expense be recorded for stock options issued to employees. Two bills were introduced in Congress. One would have prohibited such accounting, and the other would have required it. As you know, the FASB changed its proposal, requiring disclosure only.

Shortly thereafter, the SEC chairman proposed to "stack" the Financial Accounting Foundation (FAF) so that public interest trustees would be in a majority when appointments are made to the FASB. He also wanted to approve such appointments. The result was an equal number of public and private trustees.

The next instance involved the FASB project on derivatives, which resulted in bills being introduced in both Houses of Congress that would have interfered with the FASB's standard-setting process. Finally, just this year there have been congressional hearings in connection with the FASB proposal on business combinations.

In each instance IMA has written to the regulator or legislator expressing our firm commitment to private-sector standard setting where we have full due process and participation in the activities. What we cannot do is run to Congress whenever we disagree with the result of these full and complete deliberations. To do so could destroy private-sector standard setting.
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Title Annotation:Financial Accounting Standards Board sets rules
Author:Minter, Frank
Publication:Strategic Finance
Article Type:Brief Article
Geographic Code:1USA
Date:Oct 1, 2000
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