In “The Spirit of Accounting” and more thoroughly in our book, The FASB: The People, the Process, and the Politics, we’ve described the Financial Accounting Standards Board’s political history, noting that it was initially controlled by the auditor constituency because of its close ties to and dependence on the American Institute of CPAs for its credibility. That situation lasted only a few years after its founding in 1973, followed by about 25 years of preparer domination fueled by the board’s vulnerability arising from its need for corporate contributions.

In 2002, Sarbanes-Oxley granted FASB financial autonomy by authorizing it, as the Securities and Exchange Commission’s designated standard-setter, to collect a mandatory support fee from public companies. The board quickly discarded this freedom 50 days later when it signed the “Norwalk Agreement” that bound it to partner with the International Accounting Standards Board for developing new standards and reworking old ones. Incredibly, this arrangement compelled FASB to compromise with the IASB, which did (and still does) rely on contributions, including many from American corporations.

When that partnership collapsed a few years ago, FASB finally achieved full independence.


This history has these two crucial implications:

  • Politically compromised standards issued throughout FASB’s existence have not fundamentally improved reported information’s usefulness.
  • FASB is now free as never before to repair these shortcomings.

In contrast, we’re puzzled that the board has focused on tweaking existing standards instead of expanding its influence by acting more boldly.

We’ve pondered whether FASB is fixated on simplification and technical corrections because its leaders have not yet comprehended that it’s both more powerful than ever and obliged to resolve genuinely significant issues that it could not address before.

Echoing the quotes in the sidebar (see “Thoughts on power,” below), we ask, “What’s the point of FASB’s power if it doesn’t apply it to real problems?”

We conceived this column’s message after receiving a comment from a FASB insider who disputed multiple assertions in this space that the board is finally independent from those who previously inhibited its activities. The gist was that the SEC is holding the board back. In addition, others at FASB have previously confessed to us that they worry about congressional meddling.

Thus, we’re expressing our thoughts to encourage the board and present some highly significant ideas to our readers.


If it really were true that the SEC and Congress are deliberately preventing FASB from promoting more efficient capital markets by improving financial statements, the board and its Financial Accounting Foundation should be shouting that very important and newsworthy story from the rooftops, instead of whispering about it like it’s an embarrassing family secret.

After all, the SEC is not only the watchdog for the markets and investors but also FASB’s patron protector. If commissioners are actually conspiring surreptitiously to suppress the board’s power and discourage innovation, they must be held accountable. In the same vein, if members of Congress are pressuring the SEC and FASB to prevent progress, that behavior needs to be exposed and nullified.

Of course, the board’s worst possible response to any such pressures would be to yield to them and never try to significantly improve financial reporting. That’s why we’re baffled that anyone at FASB would excuse its reluctance to act boldly with this frail rationalization. Therefore, we’re challenging the board to act without fear of the SEC or Congress because it is now strong enough to prevail over them.


Some fear the SEC might rein in FASB’s reform efforts by rejecting a standard. A relevant insight came to Paul M. in 1987 during a meeting between the SEC’s then-chief accountant, Clarence Sampson, and Jacob Samet, his counterpart at the Israel Securities Authority. The visitor asked whether Clarence could overturn a FASB standard. His quick reply was: “Oh, I have the authority, but I don’t have the power.” And so it is today.

Could the commissioners rein in FASB by reducing the board’s support fee? Theoretically, yes, but the SEC’s very public due process would require them to somehow rationalize retaining GAAP statements that are short on useful information and long on the useless. What about the risk the SEC could de-authorize and replace FASB? First, that move is politically indefensible. Practically speaking, the SEC can’t manage its financial reporting issues without the board’s help. It’s also totally unrealistic to think the IASB could even begin to fill that role.

For sure, FASB is now so powerful that it faces no existential risk from the commission.


We also assert that FASB should not be intimidated by legislators. There’s no real threat that Congress would ever collectively consider repealing the standard-setting section of Sarbanes-Oxley or force the SEC to revoke the board’s status as the authorized standard-setter. It’s worse than a pipedream to believe majorities of the House and Senate would support the unsupportable proposition that more useful financial statements would be bad for the capital markets.

Sure, some accounting pseudo-experts in Congress, such as Rep. Brad Sherman (see our April 2017 column, “Four Tales of Futility”), may bluster and sputter, but the most they can ever accomplish is publishing media releases about their spurious bills.

Let’s all get serious: How on earth could any arcane issue about reporting standards ever garner full congressional attention? In light of the pivotal controversies about such genuinely significant matters as national security, immigration, health care and tax reform, we suspect that any fears of Congress may reflect unrealistic self-perceptions at the board of its significance in the overall context of running the country.

Because talking about the board in Congress can at best generate only a flood of yawns, there’s also no existential threat here.


History shows that FASB has also faced internal pressures to avoid rocking the boat. We’re confident that leaders (present or future) who comprehend its newfound independence can overcome this negativity.

Specifically, any action by the foundation’s trustees to block proposals for substantive reforms would be so far outside their boundaries that today’s board would openly resist that pressure. After all, it was the trustees’ out-of-bounds efforts to suppress change in 1996 that led then-SEC Chairman Arthur Levitt to radically restructure the FAF. If something like that were to happen again, the repercussions would be more drastic and the process would surely be out in the open for everyone to see. There’s nothing to fear here.

If some of FASB’s own people are stifling reform, that situation should be exposed and resolved. Surely, the board can fulfill its mission to help capital markets become more efficient only by improving much, if not everything, that’s wrong with GAAP. Further, overcoming internal resistance to progress would grant leadership to those who fully comprehend the need for improvement, have a passion for making things better, and don’t fear taking risks. Clearly, these internal obstacles can be overcome.


We’ve often wondered whether FASB’s present penchant for inaction results from its long history of working under relentless negative feedback from managers and other constituents. Speaking for us, we suspect that some at the board still fear that proposing significant improvements in GAAP would lead to its demise even though those who formerly applied pressure are now virtually powerless.

However, we’re quite sure FASB has nothing to lose by proposing real reforms. After all, how can the board justify its existence if it doesn’t stick its neck out to improve its standards? The situation is even worse if its people don’t even recognize the need to curtail the fake news presented in today’s financial statements.

Bottom line, FASB will fail to serve the capital markets, the economy and the country if it won’t muster sufficient courage to use its now extensive power to compel or merely encourage more frequent reporting of better information about virtually everything.

Therefore, we call on today’s board and staff members to do what is surely best for everyone (including preparers) by exercising visionary and responsible leadership that, on one hand, will start educating FASB’s constituents about the benefits of reporting the truth, the whole truth and nothing but the truth, while, on the other, radically reforming reporting standards and practices.


As our final analysis, we find no clear difference between a regulatory body that has no power at all and one that has much power but fails to exercise it. We’re convinced FASB presently falls in the latter category, yet our perennial optimism engenders a hope that it can shudder itself awake and become an active positive force for progress after 40-plus years of politically induced underachievement. To do so, however, its people must open their eyes to a different world and embrace it. Those who can’t should stand aside for others who are eager to tap into its great potential that has been stifled for far too long.


“Power should act and not talk.” — Johann Wolfgang von Goethe

“What kind of power was it if it would never be used?” — Chinua Achebe

“That power is in vain which is never in use.” — Benjamin Whichcote

“Power unused is power useless.” — Gloria Feldt

From Profs. Miller and Bahnson: We need your help! Over the years, many readers have wanted to access past Spirit of Accounting essays to probe our views on specific subjects. In response, Paul Bahnson has created a complete archive of the nearly 400 columns published since 1996. In addition, he indexed this database to help users easily identify which columns address which subject.

We now need your valuable input on how we can make this resource available to as many people as possible. Thus, we’d like to form a readers’ focus group to explore this challenge. If you’d like to help, please contact us at