FEI Response on Restructuring FASB: 'Respectfully Disagree'

February 13, 2008

FEI Summary

FEI’s Committee on Corporate Reporting (CCR) and Committee on Private Companies (CPC) each filed comment letters in response to the Financial Accounting Foundation’s (FAF) proposal to restructure FAF, the Financial Accounting Standards Board (FASB) and the Governmental Accounting Standards Board (GASB). FAF oversees the two standard-setting boards.

The CCR letter and the CPC letter each supported FAF engaging in an analysis of how it may improve FAF’s and FASB’s governance and the standard-setting process.

However, both of the FEI letters also raised significant concerns about FAF’s proposed reduction in size of FASB's board from seven members to five, and about FAF’s proposed simple majority voting (vs. super-majority voting) requirement, particularly in light of the proposed reduction in size of the board.

The CCR letter filed on February 13, signed by CCR chair Arnold Hanish, said, “We agree that positioning FAF and FASB to become even more effective and efficient in a changing environment is critical at this time.”

Additionally, CCR said, “We agree with the Trustees that the continuing expansion of the global financial markets and the drive toward the use of a converged or a single set of global accounting standards will place new and greater demands on the standard-setting process.”

However, the letter noted, “CCR respectfully disagrees with the proposed [reduction in size of the FASB board],” and “do not agree … that reducing the number of board members from seven to five will result in FASB being more nimble and responsive to these demands.”

“We continue to believe that the board needs a sufficiently broad based group to study and bring a variety of individual and industry perspectives and experiences to the analysis, and to have a comprehensive debate of the issues, in the development of well thought out standards,” said CCR, adding, “A smaller board may not best represent the perspectives necessary to present a generally accepted standard.”

Communicating the private company perspective, the separate letter filed by FEI’s CPC on February 8, signed by CPC Standards Subcommittee chair Bill Koch, also “respectfully disagree[d] with th[e] proposed change” in size of the board.

“At the extreme,” said CPC, “having a board comprised of only one member could make the board extremely agile, but at the cost to the quality, integrity and perception of the standard setting process. From a 'driving value' perspective, we ask if agility should be the driving value or should some other value, such as broad support or quality be the driver in the standard setting process?”

“As private company statement users and preparers,” added CPC, “we note that there have been at least two recent examples (FIN 48, FAS 150) wherein significant changes and delays in the standard were made about the time the standard was to have been implemented because of adverse impacts on private companies. By having a diverse constituency on the board, it seems to us that such would provide a check that the divergent needs and views of the broad user community have been adequately addressed, and further, that the costs of the change in standards are more than balanced by the benefits for private companies. Therefore, we do not support the proposal to reduce the number of members from seven to five.”

Prepared Feb. 13, 2008 by Edith Orenstein, Director, Technical Policy Analysis, Financial Executives International (FEI). This summary does not represent FEI opinion unless specifically noted above.