Expectations, Scaled Back: From FASB’s New Chief, Signs of a Shift

The road to improved accounting rules seems to be littered with diminished expectations. That appears to be a hard – and everlasting -- lesson for the diligent rulemakers at the Financial Accounting Standards Board and its partner in London, the International Accounting Standards Board.

Over the last decade, ambitious agendas for transatlantic convergence on accounting principles have been pared back, and pared back again. The FASB-IASB docket has featured big joint projects aimed at important improvements. However, they included quick-hit convergence efforts, too. Unfortunately, even the quick-hit items hit back. Several big-ticket accounting topics have been put on long-term hold.

Then there is the issue of time – or, more specifically, how long it takes to complete standard-setting projects.

Lawrence Smith, a FASB member who used to be chief of the technical staff in Norwalk, commented on the board’s battle with the clock at the “FASB@40” conference (and old-home week) in New York Sept. 12. Smith began working at the board in 2002.

“When I joined the FASB as a staff director, revenue recognition was on our agenda,” Smith said. “It’s now 2013, and revenue recognition is still on our agenda.”

Smith recounted how, in 1961, President John F. Kennedy announced the goal of landing a human on the moon by the decade’s end. That goal was met in 1969. “And I know revenue recognition is a very complicated matter,” Smith said, not tying up the comparison as the audience erupted in laughter.

The FASB member went on to question the effectiveness of the standard-setting process at FASB. On the aging revenue recognition effort, he noted that revenue reporting will change at some companies, ”but for a very, very significant number of transactions, there’s not going to be a change.

“And yet, we’ve spent 11 years really trying to fix this issue,” Smith added.

Golden’s Words.

At the same 40th anniversary conference, Russell Golden, who formerly worked as Smith’s deputy on FASB’s staff and then joined the board as a member in 2010, gave his first major public speech as chairman. He took the chief’s job July 1.

Several words used by Golden Sept. 12 suggested a shift in FASB thinking. His words seemed to reflect, regrettably, an acknowledgement of unfulfilled hopes -- so far -- in ongoing, difficult standard-setting on such topics as banks’ loan loss accounting.

Since 2001, the year that IASB was born, the two boards have talked about striving, wherever possible, to have jointly-conceived standards worded exactly the same. Like wording (when joined with able auditing and enforcement) makes for a better chance at globally comparable financial reporting.

 “The Fewest Possible Differences.”

However, Golden’s speech signaled a retreat, it seems, as the FASB and IASB end their intense, bilateral standard-setting partnership of 11 years, as he described that relationship. Cross-border collaboration in standard-setting will be on a new footing. FASB will be one of many rulemakers joining IASB around a table, such as at meetings of the London board’s new Accounting Standards Advisory Forum.

“In some cases, the need of the FASB (and other national standard-setters) to best serve the interests of investors in their own capital markets may outweigh the goal of creating completely converged accounting standards,” Golden said in his speech. “But following this path would enable us to work cooperatively with the IASB and others toward the goal of ultimately agreeing on and adopting standards that either are converged or that have the fewest possible differences.”

Minutes later, in a press scrum as the conference ended, the FASB chairman was asked about potential divergence from the IASB-written international financial reporting standards. Golden said that he hopes “we can improve U.S. GAAP and also seek to make it as comparable as possible.”

Would that mean “comparable to IFRS, but not totally the same?” a reporter asked. Golden responded: “To me the goal is that the investor gets comparable information. And so the best thing to think about is, what is the problem we’ve identified in the U.S.? What are the potential solutions? And when we think about those potential solutions, we’re going to look at what other standard-setters have done around the world to see if they have a solution that we can use.”

By Steve Burkholder, a Bloomberg BNA Staff Correspondent