Here are four short essays about recent events.


We’re heartened by two February announcements. Specifically, the Financial Accounting Foundation announced that Dr. Christine Botosan of the University of Utah will succeed Dr. Tom Linsmeier as the Financial Accounting Standards Board’s academic member. Our buttons are busting because Paul M. was a longtime member of the Utah faculty and Paul B. earned his Ph.D there. In addition, we have often referenced Christine’s research that supports our Quality Financial Reporting premise that higher-quality information produces lower capital costs and higher security prices. We expect her to incorporate this idea in her own thinking and the board’s deliberations. Congratulations to her from both of us.

In addition, kudos to Jeff Thomson, CEO of the Institute of Management Accountants, who was recognized as one of 100 Top Thought Leaders in Trust by the “Trust Across America-Trust Around the World” organization. The IMA’s release quoted the TAA-TAW’s founder: “[Our honorees] inspire organizations to look more closely at their higher purpose, to create greater value for — and trust from — all of their stakeholders.”



In January, FASB released Accounting Standards Update 2016-01 that implements the market value method for marketable equity investments. Specifically, these assets will appear on balance sheets at market value with all realized and unrealized value changes reported on income statements. This update gets rid of the “Available for Sale” portfolio and the “Unrealized Gain or Loss” component of Accumulated Other Comprehensive Income, both of which were impossible to explain to students.

At last, FASB has created genuine accountability and comparability. However, it’s ironic that the Accounting Principles Board proposed this treatment in a 1973 exposure draft that died along with the board. The fact that the board took 43 years to get here casts a different light on this accomplishment.

Nonetheless, we hope FASB will soon apply this complete mark-to-market method to pension plan assets and debt security investments. The only objections will be politically motivated because all three portfolios are economically identical.



In the Sherlock Holmes story, “Silver Blaze,” the key clue that solves the mystery is the dog that didn’t bark, with a watchdog’s silence informing the eccentric sleuth that the culprit was an insider whose presence didn’t trigger an alarmed response from the animal.

This notion that silence can be key evidence sheds some light on the topic of our January 2016 column (“Transparency, integrity, prophecy and the AICPA merger”). Specifically, one cornerstone of the American Institute of CPAs’ proposed merger with the Chartered Institute of Management Accountants is the exaggerated claim that the two are just one big happy family that belongs together. The purported evidence is the multitudes of AICPA members who have become CGMAs, with many more to come in the near future. The catch is that the free ride is over because all new applicants have to pass an exam instead of just meeting a, shall we say, generously broad experience criterion and having their employers pay an annual fee.

At the time we’re writing (March 2016), we’re noticing only a deafening silence coming from the institute about the results of the first CGMA exam that was administered in late May 2015. We keep checking with people who would know but, so far, everyone says, “Nothing yet!” with occasional skeptical comments thrown in. We’re now bringing our readers in on the mystery of the PR department that hasn’t barked.

We’ve come up with three speculations and have settled on the one that makes the most sense. One suggests that the grading process is still incomplete, but that seems unlikely after more than nine full months. Another speculates that the tests have been graded but that too many scores fell below the passing level. As humiliating as that would be, it could be handled by changing the standards. Instead, the AICPA has said nothing.

Thus, we, and others outside the AICPA’s inner circles, are left with the only other reasonable inference that very few candidates actually sat for the exam. After all, who would rationally incur the cost and effort just to get a designation that 30,000+ other AICPA members bought for about $150 a year?

If this explanation is right, a crucial premise for proceeding with the merger has been completely destroyed.

Frankly, we would be pleased to learn that only very few signed up for the exam, because we’re persuaded that the proposed joint organization is a really bad idea. Furthermore, we aren’t surprised by the AICPA’s silent treatment because it’s consistent with what we perceive as the elite’s tendency to selectively present stories that create favorable but incomplete impressions.



Another newsworthy event in February was FASB’s release of ASU 2016-02 that revises accounting for leases.

Longtime readers might think we would be ecstatic that the new standard calls for recognizing liabilities for all leases. We are pleased, but our enthusiasm is tempered because the update looks to us like only a baby step at best. Why? Because we just don’t think it’s going to work out that well for statement users.

For one thing, liabilities won’t be recognized for the great many leases that will be totally exempted from capitalization. Like board member Marc Siegel and an official of the CFA Institute (the most important user constituency), we find the board failed to implement the best available treatment.

Nine years ago, we summarized our early fears in “Lease reform — a capital idea that doesn’t go far enough” (October 10, 2006): “We especially don’t want our friends at the board to feel they have accomplished a great deal by bringing accounting practice up to the level it could and should have achieved in 1976. In addition, we don’t want statement users to mistake capitalized lease numbers for what they really need to make better decisions in the capital markets.”

After five years passed, our July 2011 column (“Leases, frontendophobia and a glimmer of hope”) strongly urged FASB and the International Accounting Standards Board to not squander the project’s potential for reform. Our concern was that this seriously flawed practice area has driven naively devious managers to enter into economically unsound transactions just to superficially look better through off-balance-sheet financing. Here’s how we summed up our position: “Unless the glimmers of hope [for reform] blossom into the real thing, this golden opportunity to create useful financial statements for lessors and lessees will be lost for another generation or two.”

Alas, we find that our anxieties were warranted. Even after splitting up with the IASB, FASB seems satisfied without getting every lessee to capitalize every lease. In addition, having assets and liabilities on balance sheets won’t be adequately useful if their reported amounts aren’t continuously adjusted to approximate fair values.

The standard’s most galling failure is its deficient materiality test that exempts any individual lease that lasts 12 months or less, even when a single lessee has entered into thousands of them. We previously stated our concerns this way in our July 2011 column: “This misbegotten decision [to exclude 12-month leases] resuscitates original operating lease accounting with level rent expense and nothing on balance sheets. This … move seems intended to assuage complaints about preparation costs. After all, a junior accountant might need as much as three minutes with an Excel template to figure out what amounts to capitalize.”

In addition to those two columns, we were fortunate enough to deliver a personal appeal to the board to the effect that materiality is a legitimate screen but that it must be applied to the lessee’s entire portfolio of leases, instead of each individual lease. Surely our neophyte students are not the only ones who can see that this exception will trigger an avalanche of individual 12-month leases that will perpetuate off-balance-sheet financing. It would be far better to test whether short-term leasing is a key component of the lessee’s financing strategies for asset acquisitions. If so, then it would have to capitalize every lease.

Another failing is the bizarre method that lessees will use for operating leases to subsequently account for the assets and liabilities. Specifically, both elements will be amortized to produce a constant combined amount of depreciation and interest cost for each year in the lease. When interest cost is allocated as usual by applying the discount rate to the liability balance, then the depreciation cost is plugged in to make the combined costs equal to the targeted constant amount. The results are that the asset and liability balances will be identical, and the depreciation method will be reverse-accelerated, with larger charges each year. We hope you join us in saying, “Huh?”

Now you see why we look on the results of FASB’s 10 years of due process on the lease project as a missed once-in-a-lifetime opportunity. And that’s mostly bad news.

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

Register or login for access to this item and much more

All Accounting Today content is archived after seven days.

Community members receive:
  • All recent and archived articles
  • Conference offers and updates
  • A full menu of enewsletter options
  • Web seminars, white papers, ebooks

Don't have an account? Register for Free Unlimited Access