Last month’s column presented an excerpt from our new fifth edition of The FASB: The People, the Process, and the Politics (published by Sigel Press) that explained how achieving global capital market efficiency requires far more than relying on the International Accounting Standards Board to produce uniform accounting standards. In fact, standards could at most make merely a small contribution to efficiency and only in a world that is far different from today.

Among others, one of our key messages in this follow-up column is that the chair and chief accountant of the Securities and Exchange Commission can best promote useful financial reporting by turning the Financial Accounting Standards Board loose to reform standards and practices in the United States and thereby lead the rest of the world by example. This strategy is far superior to the one advocated in these officials’ timeworn and threadbare calls for convergence. Voicing these demands only encourages the board to waste its resources by continuing its fruitless attempts to complete the impossible task of creating worthwhile standards in partnership with the IASB.

If FASB were to get this free rein, it could actually upgrade financial statement information, instead of squandering its time and talents producing insignificant tweaks and nibbles around the edges.

To illustrate what we mean, the following discussion from the fifth edition describes what we think should be the board’s highest-priority items on its “to-do” list.


We now cast our vision of the best way for FASB to contribute to the process of creating more efficient global capital markets. Our first and broadest bit of advice is to comprehend there is little likelihood that anyone on the board or staff in 2015 will live long enough to see the goal fully accomplished. If so, the appropriate operating mode is taking one small step at a time, always with the idea that it will be best to get it right the first time so you’re not leaving a mess for someone else to clean up years later. Beyond that point, we’ve boiled our guidance down to three to-do’s.



History shows that FASB as an institution is now more independent and empowered than ever before. It is no longer beholden to auditors for its reputation or to financial statement preparers for its funding and it is effectively released from its complicated convergence relationship with the IASB. Additionally, by virtue of its status as the SEC’s designated standard-setter, the board is free to tackle more issues without interference from those who are obviously advancing their own self-interests.

Therefore, the gist of our first to-do item is to just get busy producing new standards that will wipe out old problems and compromises that have kept useful information from reaching financial statement users. Doing so will require a new attitude, especially for those who have been around the board for a while, because, unwittingly or not, they may have grown so accustomed to being beat up by their critics that they may not realize they’re now free to think and act differently. The big change for them will be coming to understand that critical comments about proposed standards they received in the past may have led them to believe that the board had to mollify its critics by changing something. Coming from our many years as outspoken columnists, our advice for board and staff members is to start seeing criticism of their work as clear proof they have come up with good ideas that they should not compromise away.

One specific bit of advice is to avoid getting mired down trying to fix FASB’s conceptual framework. Board and staff members need to realize that it’s incomplete and otherwise not fully useful in its current condition and just use it as it is. We don’t believe any FASB standard has ever been completely consistent with the present framework’s tenets and there’s certainly no guarantee that spending years on producing a better one will necessarily lead to the right kind of progress. We’re not saying that FASB should ignore or discard the framework, but we are saying that it needs to set a priority on issuing new and better standards.

How does this to-do item relate to international accounting? The answer is simple and straightforward: The board’s new independence has made it the most empowered and well-equipped standard-setting body in the world. As such, it is incumbent on FASB to take giant strides away from its weaker past when predecessor board members seem to have been cowed into unproductive compromises by threats and intimidation. By acting with strength, today’s members will set a more positive pattern and tone for their colleagues at the IASB and other national bodies that they, too, need to be bold to keep up with FASB’s accomplishments. They can use the board’s courageous actions to justify acting similarly. Thus, if FASB’s new standards produce useful information that enhances comparability, then so also will theirs.



As the best equipped and most independent standard-setting institution, FASB simply must make its ideas available to all other similar boards around the world. Therefore, we find it incredibly significant that the IFRS Foundation acted in March 2013 to invite the board to participate in its newly formed Accounting Standards Advisory Forum after dropping an earlier plan to invite participants only from those countries that have adopted IFRS as their national standards.

Like the FASAC serves FASB, this body was established to advise the IASB; however, it obviously will be a two-way street in the sense that the IASB and the other 12 members of the forum will share their experiences with each other. In our eyes, this body will provide a near-perfect mechanism for FASB to communicate its views and advice to many others while hearing what they have to say without facing any pressure or compulsion to agree or enter into a consensus with the IASB or any other participants. As the most independent, FASB will not need to hold back its views and will certainly have no reason to seek compromise with the others.



While converging GAAP and IFRS seemed like a good idea when first proposed, actual experience proved otherwise, because the Norwalk Agreement compelled FASB members to compromise not only among themselves but also with a majority of IASB members, who, in turn, had compromised among themselves.

Therefore, converged standards are based on compromised compromises, and that certainly doesn’t seem like a good way to get useful information into financial statements. Again, we think the key to FASB’s success in standard-setting is achieving it quickly
without waiting for other standard-setters to catch up.

Another way to describe the risk of being bound with another board to produce converged standards is that the mere act of producing a consensus standard of any kind will be perceived as a worthwhile accomplishment in and of itself, even if the result is poor guidance that will not lead to useful financial statements.



In summary, FASB will be far more likely to promote progress in international financial reporting and help establish more efficient global capital markets if it remains unattached and unfettered without striking deals with others who must cope with their own unique political pressures and publish standards to please their local political opponents, instead of helping users make better decisions. It’s tough enough for FASB to deal with its own politicians, and the board would surely fall into a quagmire from which it couldn’t easily escape if it tried to produce international consensuses to also satisfy the desires of other countries’ politicians, such as the European Union. The far-and-away best strategy is to avoid those struggles altogether and do what is best for your own constituents.



We believe this wisdom from Washington’s 1796 Farewell Address to be especially pertinent: “The great rule of conduct for us, in regard to foreign nations, is, in … our commercial relations, to have with them as little political connection as possible. So far as we have already formed engagements, let them be fulfilled with perfect good faith. Here let us stop. Europe has [its] primary interests, which to us have none, or a very remote relation. Hence she must be engaged in frequent controversies, the causes of which are essentially foreign to our concerns. Hence, therefore, it must be unwise in us to implicate ourselves, by artificial ties, in the ordinary vicissitudes of her politics or the ordinary combinations and collisions of her friendships or enmities.”

Of course, this advice also applies to the IASB and any others who would seek to join with FASB and thus plant themselves in the middle of American issues that have no meaning for them.

We’re confident that history will validate our conclusion that the fastest way to achieve the greatest progress will involve releasing FASB from its political encumbrances so that it can pursue the multitude of reforms that are so desperately needed in the United States and elsewhere. We also anticipate that the IASB will at some far distant point in the future gain the same sort of political independence and achieve its own accomplishments.

Our closing thought is that the SEC’s chair and chief accountant may be well meaning, but are completely mistaken. Yes, the world does need better accounting standards, but no, the politics surrounding the IASB make it incapable of leading that campaign. Therefore, the commission’s officials, and others, simply must abandon their repetitive and empty rhetoric and let FASB tackle its to-do list. The result will surely be better and more timely financial reports, that will, in turn, contribute to more completely informed capital markets.

That outcome ought to be the common goal of all regulators, all standard-setters, and, of course, all accountants. 


Paul B. W. Miller is an emeritus professor at the University of Colorado at Colorado Springs and Paul R. Bahnson is a professor at Boise State University. The authors’ views are not necessarily those of their institutions or Accounting Today. Reach them at

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