The Financial Accounting Foundation’s board of trustees has voted to approve a range of sweeping changes in the oversight, structure and operations of the FAF and its two standards-setting boards — the Financial Accounting Standards Board and the Governmental Accounting Standards Board.The FAF plans to expand the number and breadth of investors, accounting, business, financial and government organizations and entities invited to nominate FAF trustees. Final authority for all the appointments will remain at the discretion of the board of trustees, who are responsible for the oversight, administration and finances for both of the standard-setting boards.

The board voted to reduce the size of FASB from seven members to five, effective July 1, 2008. The board will retain the FASB simple majority-voting requirement, but affirmed the need for investor participation by broadening the current by-law requirement that FASB members possess investment experience.

The by-law will now read: “The members of the FASB shall, in the judgment of the trustees, have knowledge of investing, accounting, finance, business, accounting education and research, and a concern for the investor and the public interest in matters of investing, financial accounting and reporting.”

The FAF is also changing the current term of trustees from one three-year term with a possible second three-year term, to one five-year term.

The sweeping changes stem from recommendations made by a committee on governance review, which the FAF formed in July. The panel was charged with giving a top-down examination of the FAF, FASB and GASB.

FAF Chairman Robert Denham labeled the changes “a thoughtful and well-considered action necessary to ensure the FAF’s continued and enhanced ability to meet its responsibilities to the public through the development of transparent, high-quality financial reporting standards.”

In addition, the FAF is changing the size of its board of trustees from a fixed size of 16 trustees to a flexible range of 14 to 18 trustees. The size will be fixed by board resolution from time to time. The FAF also will increase the trustee governance activities, including the level of formal review, analysis and oversight of the data and materials regularly provided by FASB, GASB, the Financial Accounting Standards Advisory Council and the Governmental Accounting Standards Advisory Council.

The FAF trustees also have changed FASB’s agenda-setting process to a “leadership agenda process” whereby current FASB Chairman Robert Herz will be vested with the authority, following appropriate consultation, to set FASB’s project plans, agenda and priority of projects.

As for GASB, the trustees voted to secure a stable and permanent funding source for GASB. They want to retain the current size, term length and composition of GASB. However, they have changed GASB’s agenda-setting process to a “leadership agenda process” similar to FASB’s new agenda process.

The changes for GASB come after the governmental standard-setter suffered through a particularly rough 2007, staving off challenges in both its home state of Connecticut and earlier in the year in Texas.

In Texas, the state attempted to opt out of a GASB rule that requires governments to disclose how much they will have to pay for their retired workers’ health care.

Meanwhile in Connecticut, the standard-setter dodged a potential crisis when the state’s governor, M. Jodi Rell, vetoed a bill that would have allowed the state to set its own accounting standards.

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