Former Financial Accounting Standards Board chairman Robert Herz has written a new book on his experiences chairing the Financial Accounting Standards Board and the challenges he faced during the financial crisis.
In the book, published by the American Institute of CPAs, Herz also recounts some missteps while guiding FASB, along with the achievements he and his colleagues on the board helped oversee.
The book, Accounting Changes: Chronicles of Convergence, Crisis and Complexity in Financial Reporting, also tells of Herz’s experiences in responding to Enron and other accounting scandals and examines how FASB, the Securities & Exchange Commission and other regulators dealt with a number of issues, ranging from the expensing of employee stock options to the treatment of off-balance sheet entities, and from the definition of fair value to the movement toward commonly embraced international accounting standards.
Herz mostly has fond memories of his time at FASB, even though he faced continual challenges. "As I say in the book, it was a terrific experience," he said. "It’s a great organization with terrific people. The constant challenge, I find, is really to make people understand the importance of sound accounting and reporting to the whole system. Inevitably there are always special interests when you’re working on something to approve the accounting who may not agree with the direction you’re heading in. If they can’t persuade the FASB, they then will often go down to the SEC to try to persuade them. That usually doesn’t get much traction, but they may then seek to do something through the political avenue.
"There were a few of those episodes," he recalled. "There was the stock option one, which was quite intense. I cover that in a whole separate chapter, why that issue was a real important one, and the dynamics of that, the political pressure we came under, and why it was important that in the end we were able to issue a new standard that improved the accounting. The financial crisis was challenging just because, as a lot of people said, events were evolving at such a rapid pace. The markets were in such turmoil that no one exactly had a playbook of what needed to be done, so you needed to have a lot of consultation, a lot of conferring with our constituents, with the SEC, with others. But there were things that needed to be done in the financial reporting area during that time frame because of some of the issues that arose with off-balance sheet entities and impairment of financial assets. How do you do fair value when there’s not transparent price discovery on the markets and things like that? That was a challenge from that point of view, and some people tried to get certain things done through political means."
The book makes a case for the vital importance of sound accounting and financial reporting to the capital markets, the financial system and the economy.
A former senior partner at Coopers & Lybrand and PricewaterhouseCoopers, leader in the profession, and original member of the International Accounting Standards Board, Herz makes a number of suggestions for changes that he believes will positively affect financial reporting. He recommends making financial documents less complex and that they contain key nonfinancial information that impact business performance.
Herz also calls for better use of technology to improve the accessibility and utility of financial information. He also would like to see the profession tackle a number of fundamental conceptual issues that continue to challenge accounting standard setting and financial reporting. Herz also urges greater clarity from the SEC on where the United States is heading on support for international accounting standards.
“The U.S. system should not have to ‘ride two horses’ for an indefinite or a prolonged period, and the world is watching and waiting,” he wrote.
Herz is eager to see what the future will bring with accounting standards. “Imagine a global reporting system in which, for any listed company in the world, you can quickly access consistently prepared, comparable, and understandable financial and key nonfinancial performance information,” he wrote.
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