With a slate of exposure drafts awaiting comment and a June 2011 deadline for major projects on convergence between U.S. GAAP and International Financial Reporting Standards, the Financial Accounting Standards Board nevertheless has little choice but to navigate that imposing agenda without its long-time chairman and with some empty seats on its board.
Last month, Robert Herz, who had helmed the standard-setter since 2002 and who weathered, among other storms, the massive accounting scandals at WorldCom and Enron, and intense pressure from lawmakers to loosen fair value standards, suddenly announced his retirement, effective October 1. The organization's overseer, the Financial Accounting Foundation, subsequently named board member Leslie Seidman as acting chair.
While at press time no official reason had been given for Herz's abrupt exit, it was notable that he still had two years remaining in his second five-year term. A search for Herz's successor is currently underway.
Meanwhile, the heads of domestic and international accounting organizations opined that FASB could not afford to lose much momentum post-Herz, despite the lengthy to-do list and a temporarily reduced board.
"An important question facing FASB now isn't how will it change, but what is the work it still has to accomplish," said Barry Melancon, president and chief executive of the American Institute of CPAs. "Two major priorities that are critical have to do with convergence with international accounting standards and balancing theoretical accounting issues with practical application for the different business and user segments. FASB recognizes there is a demand for one set of global accounting standards and has worked with the International Accounting Standards Board for the past eight years toward achieving that end. Even if the United States adopts IFRS - and we believe it will - FASB will have to help public companies make the transition to a new method of financial reporting."
"Bob Herz was an extraordinary leader of FASB, steadily leading the board through some very difficult and volatile economic times," said Bob Bunting, president of the International Federation of Accountants. "He also championed and set the stage for the convergence of global accounting standards, and in this regard, his voice as chairman of FASB will be sorely missed. But I have great faith that Bob's retirement will not diminish FASB's overall resolve to work actively and purposefully to achieve global convergence of accounting standards."
Concurrent with Seidman's interim appointment, the FAF revealed that the board would be expanded to its original slate of seven members, thereby reversing a 2008 decision to reduce it to five. However, FAF Chairman Jack Brennan did not reveal a timetable for the appointments.
"With a new chair and two new board members, there is likely to be some effect on the style in which the board delivers its message and agenda," said Marie Hollein, president and chief executive of Financial Executives International. "We believe Leslie is absolutely qualified to hold the position of acting FASB chair at this crucial point in time, and look forward to continuing working with her."
Prior to joining the board in 2003, Seidman served as vice president of accounting policy at J.P. Morgan & Co. At FASB, she has been spearheading efforts on leasing standards. She was not available for comment.
Herz had been one of the main drivers of converging GAAP with IFRS and had been working with Sir David Tweedie, his counterpart at the International Accounting Standards Board. Both boards had agreed on a June 2011 deadline of completing many of the major obstacles in terms of projects after getting pressure from the G-20 leaders. However, Tweedie is set to retire in June 2011, leaving a large void in convergence leadership both domestically and internationally.
FASB is also seeking comment on some nine exposure drafts on the convergence roadmap - five of which at press time were due in September - including some broadly debated issues, such as revenue recognition, lease accounting, accounting for contingent liabilities, and financial instruments.
Meanwhile, the Securities and Exchange Commission is expected to begin providing its own progress reports on the Work Plan for Global Accounting Standards by October.
In addition to driving convergence, FASB in 2007 teamed with the AICPA and the National Association of State Boards of Accountancy to form a Blue Ribbon Panel on standards for private companies, with recommendations due by the end of 2010.
In 2009, Herz was subject to intense pressure from lawmakers, which resulted in a House hearing in March where they threatened legislation to force FASB to loosen fair value standards. Shortly thereafter, FASB issued guidelines easing the rules that force banks to value assets at current prices.
Conversely, in 2005 Herz guided in controversial new rules that required companies to expense stock options, despite strong opposition from many tech companies and lawmakers, particularly those with constituents in Silicon Valley.
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