CUNA Regulatory Comment Call
March 19, 2002
Proposed Changes to Streamline the Financial Accounting Standards Board
EXECUTIVE SUMMARY
- The Financial Accounting Standards Board (FASB) is the one of the 2 private-sector organizations empowered to establish national financial accounting and reporting standards. (The other organization is the American Institute of Certified Public Accountants). Although this function legally resides with the Securities and Exchange Commission (SEC) for public companies, the SEC has traditionally provided the private sector with the opportunity for self-regulation. Since 1973, the SEC has relied on the FASB for standard setting. The Financial Accounting Foundation’s (FAF’s) Board of Trustees (Trustees) is the not-for-profit group responsible for overseeing, funding and appointing members of the FASB.
- In the wake of Enron’s collapse and related troubles for Enron’s auditor Arthur Andersen LLP as well as similar episodes of lesser magnitude, the SEC is considering significant changes to revamp the current system of self-regulation, focusing on how auditing of organizations is monitored and how auditors are disciplined. In addition, since last December SEC Chairman Harvey Pitt has urged FASB to cut the time it takes to issue accounting standards. In response, the Trustees are proposing changes to the structure of FASB as well as to some of its rulemaking processes. FAF Chairman and President Manuel Johnson recently has said the FAF would do “everything within its power to review and improve the procedures and policies within its mandate.”
- Wishing to “strengthen their commitment to a strong, transparent and rigorous system of financial accounting standards,” the Trustees have issued the following proposed changes to help achieve that objective:
- Reduction in size of the FASB from 7 to 5 members.
The current FASB Board is composed of 7 members: 3 from public accounting, 2 from industry or the preparer community, 1 from the user (user of financial statements) or investor community, and 1 from the academic community. In the proposal, the FAF is not formally proposing the composition of the new Board. However, the Trustees feel that for the possible 5-member Board, 2 from the public accounting community, 1 from the preparer community, 1 from the user community, and 1 from the academic community would mirror the present composition and continue to provide an appropriate mix of backgrounds. Johnson has stated, “If approved, the proposed reduction in size of the FASB would transition over time and be achieved through attrition.” In other words, the FAF does not intend to displace Board members in order to reduce the Board’s size. The policy of the FAF is for Board members to be able to serve 2 5-year terms, or the equivalent, with reappointment offered on the FAF’s positive evaluation of the Board member’s performance. The proposal would not change this policy. - Simple majority voting requirement of 3-2 for the 5-member Board.
At present, the FASB Board has a 5-2 supermajority requirement. FASB went from a simple majority policy to the 5-2 minimum requirement in the early 1990s because the Board was seen as moving too fast in its rulemaking. The Trustees believe that a 3-2 simply majority requirement to issue a standard would be appropriate if the Board’s size is reduced to 5 members. In the Trustees’ view, a 4-1 requirement might slow the process down and give undue weight to minority views. During the period of transition to a 5-member Board, there may be a time when there are 6 members and a 4-2 vote would be required. - Shorter comment periods.
Generally, FASB exposes draft accounting rules for public comment for a standard range of 60 days to 120 days for more significant proposals. In the interest of accelerating the rulemaking process, the Trustees are suggesting that the FASB shorten its comment periods for proposed standards, for example, to a maximum of 60 days. - Comments are due to FASB by April 17, 2002. Responses should be sent to: Joseph S. LaGambina, Executive Vice President, Financial Accounting Foundation, 401 Merritt 7, Norwalk, CT 06856-5116. Mr. LaGambina's fax number is (203) 849-9714; his e-mail address is jslagambina@f-a-f.org. The Trustees will consider the responses they receive at their next regular meeting scheduled for April 23, 2002. Please send your comments to CUNA by April 12, 2002. Please feel free to fax your responses to CUNA at 202-638-7052; e-mail them to Associate General Counsel Mary Dunn at mdunn@cuna.com or to Senior Regulatory Counsel Catherine Orr at corr@cuna.com; or mail them to Mary or Catherine in c/o CUNA's Regulatory Advocacy Department, 601 Pennsylvania Avenue, NW, 6th Floor - South Building, Washington, DC 20004. You may also contact us if you could like a copy of the request. Or you may access the Request for Comments on Proposed Changes to Streamline the FASB Process by clicking here.
QUESTIONS ON THE PROPOSAL
- Do you think that that having fewer members on the FASB Board would be beneficial because deliberations would be more efficient
(less arguing)? Or do you believe a smaller Board would be less beneficial because there would be less diversity of views?
- Do you agree with the suggested composition of the new Board? (There would be no representative from the academic
community.)
Yes_____ No_____
Why or why not?
- Do you favor the proposal to do away with supermajority voting?
Yes_____ No_____
Why or why not?
- Do you believe the proposed shorter comment period of 60 days allows for sufficient time to become aware of the Board’s
rulemaking, absorb the potential impact of a proposed standard, and respond appropriately?
Yes_____ No_____
Please explain.
- Do you have any other suggestions for streamlining FASB’s structure or rulemaking processes?
Yes_____ No_____
If so, what are they?
- Do you have any other comments on how the current accounting/auditing rulemaking and oversight regime could be modified to
better address the concerns of credit unions?
Yes_____ No_____
If so, what are they?
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Eric Richard • General Counsel • (202) 508-6742 • erichard@cuna.com Mary Mitchell Dunn • SVP & Associate General Counsel • (202) 508-6736 • mdunn@cuna.com Jeffrey Bloch • Assistant General Counsel • (202) 508-6732 • jbloch@cuna.com Catherine Orr • Senior Regulatory Counsel • (202) 508-6743 • corr@cuna.com |
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