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Wednesday, March 08, 2006
Executives who use accounting-motivated transactions to prop up financial results are among the obstacles to a principles-based approach, says Robert
The Financial Accounting Standards Board is conceding that its push for a principles-based accounting system could run smack into some powerfully entrenched interests.
FASB laid out the challenges it faces in a February 16 reply to a Securities and Exchange Commission report on improving the transparency of off-balance-sheet arrangements, which was issued eight months ago. Largely agreeing with the SEC, the board threw down the gauntlet against complexity, essentially calling for the U.S. accounting industry to move away from its traditional rules-based model to a more principles-based system.
In its letter, FASB agreed to revisit everything the SEC suggested: the accounting treatment of leases, defined-benefit pensions, and financial instruments, as well as consolidation policies. But the standards board also issued a broader critique, noting that form was surpassing function in financial reporting and that complexity was clouding transparency.
The response, however, reiterated the obstacles to change that FASB chairman Robert Herz hit on in a December speech to the American Institute of Certified Public Accountants (AICPA). "Fundamental structural, institutional, cultural, and behavioral forces have caused, and continue to cause, complexity in the system and impede transparent financial reporting," he said then.
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