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Friday, June 7, 2013

FASB at 40: Keeping the Humor Handy

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NORWALK, Conn. -- “He who laughs, lasts,” is the way author Mary Pettibone Poole put it. Oscar Wilde sounded a related note: “Seriousness is the only refuge of the shallow.”

In 40 years of rulemaking, the Financial Accounting Standards Board has learned the value of humor amid all the arcane discussions that form the soundtrack for the slog toward better financial reporting. A little laughter seems to be best medicine especially when – although it might be hard to fathom – a four-letter word or three is hurled in the FASB’s general direction, and in writing, no less.

That seems to be wisdom for the ages when the board, founded in 1973, has been under attack – as when proposed accounting standards moved more than 3,000 people to gather in a California convention hall in March 1994. Many toted placards. Some wore T-shirts urging “STOP FASB.”

Not that the concerns of employees in Silicon Valley, where FASB was holding hearings on stock options expensing at the time, were not worthy of careful consideration. The board listened.

However, the kind of arguments that led to some rulemakers placing the messages figuratively in a file labeled “End of Civilization as We Know It” was bound to lead to a few smiles and rolls of the eyes.

“Grand Priests of the Double-Entry Ledger”

Thus, Bloomberg News reported the CEO of a semiconductor company saying at the anti-FASB “Rally in the Valley” in San Jose in 1994: “We’re supposed to sacrifice our job-producing engine in the Silicon Valley to rules from the grand priests of the double-entry ledger.” That was about six years before the tech bubble burst, no fault of FASB. (Under pressure from the Securities and Exchange Commission as well as the Congress, the board in 1995 backed off from its options-expensing proposal, making such reporting optional – which means it wasn’t done. Later, in the wake of the Enron and WorldCom scandals, FASB issued rules to require expensing. That was in 2004, a decade after the big dust-up.)

At what the San Jose Mercury News called the first true Silicon Valley rally in history, the signs of ’94 proclaimed “Keep Your Hands Out of My Pockets” and “Keep the Options, Stupid.” Some tried a little word play with the FASB acronym: “Federal Accountants Stifle Business” and the slightly-off-the-mark “Fools Against Stock Options.”

FASB: a Fast-Moving Freight Train?

In 2004, toward the end of the second go-’round on stock options, U.S. Sen. Mike Enzi (R-Wyo.) betrayed a lack of knowledge about the speed of careful rulemaking in Norwalk when he put out a press release headed “Employers Wonder About FASB ‘Mad Hatter’ Anti-Option Plan.”

“Like a fast-moving freight train threatening to smash through a car caught unaware on the tracks, the Financial Accounting Standards Board’s plan to require the expensing of stock options is bearing down on small businesses,” the lawmaker stated.

Weighty Words About Lightness from A Former FASB Chief.

I asked Edmund Jenkins, FASB’s chairman from 1997 through 2002, whether it helps to have a sense of humor in standard-setting.

“Absolutely,” said Jenkins, who faced his share of grilling on Capitol Hill about FASB’s derivatives accounting proposal in late 1997. “At our board meetings, I tried to put humor into the proceedings,” he added. He said the less serious talk could be self-deprecating or gentle pokes at board colleagues.

“It helps to lighten the air,” Jenkins said from his home May 31. “And it gives a feeling of camaraderie that’s good for the process.”

More Recent Debates, A Few Colorful Words.

In the post-crisis period of early 2009, FASB was on the receiving end of what could be called, in understated terms, some fairly impolitic letters. So impolitic – and colorful -- that at least one of them apparently was purged from the board’s comment letter files.

A March 27, 2009 letter from one gentleman – profession or any affiliation unstated – called on FASB to stand firm against the banks on fair value accounting. “I implore you, for the health of our markets and our children’s futures, to not rescind mark-to-market rules for banks,” he wrote. “If we lose transparency, we lose far more than banks. We lose trust. We lose the country if not the world.

“I have seen the scabrous characters who flourish under the cover of unpunished lies,” he continued. “This is your choice alone. F*#% Paul Volcker or anybody else who says it isn’t.” The letter ended with “Best Regards.”

“Dear Dummies.”

The day before, according to the record, an attorney in Iowa opened his letter to FASB, “Dear Dummies.” He went on to deride accountants for entrusting the valuation of assets to banks rather than to the free market.

“Every time we buckle to Wall Street or corporate interests we get screwed – if the bank is not solvent and [sic] accounting trick won’t make it solvent,” he continued in comment letter No. 119. “I just cannot believe Accountants would be so negligently stupid.” The attorney-letter writer argued that banks made “very dumb decisions.” He added, “now we we’re going to bail them out with an accounting trick and screw the public because they were idiots?

“Now you have joined them in idiocy,” he concluded. “Congratulations. Stupid meet stupid and screw you Joe Public.”   

Northcutt:  “Smoking Something” [Funny].

At many meetings of FASB some 15 years ago, few reporters showed up. The meetings were not Webcast.

That meant for some fairly casual wordings at times, such as when the late Robert Northcutt, a board member, offered a reality check, in his view, if FASB went down a particular path. That path -- fair value accounting for all financial instruments, with changes in earnings – would lead to cannons being aimed at Norwalk, he suggested in so many words.

Northcutt, a Georgia native who used to be controller at Lockheed (and editor of his high school newspaper, The Pitchfork), said the FASB needed “to get a little bit real here.” He added: “I think we’re smoking something if we’re going to get that through.”

A few days after the June 13, 1995 board meeting, Northcutt met me in the hall outside the board meeting room.  He said in his Peach State drawl, “I heard you quoted me.” I said that I had. I handed him a copy of Daily Tax Report with the story about which he had heard.

After a few moments, Northcutt handed it back to me. “Yep,” he said. “That’s what I said.”

  • Steve Burkholder, Staff Correspondent   
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