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April 30, 2008

AICPA labels structural changes premature

By Nicholas Moody

The American Institute of Certified Public Accountants (AICPA) has questioned the timing of changes to the governance structure of the US Financial Accounting Standards Board (FASB), calling the move premature.

The US Financial Accounting Foundation (FAF) board of trustees approved a series of significant changes to the oversight, structure and operations of the FAF, FASB and the Government Accounting Standards Boards (GASB) in February. This follows a 2007 governance review to examine the structure, effectiveness and efficiency of the governance processes of the three organisations.

The reduction in the size of the FASB board from seven members to five was one of the key changes to emerge. Chairman of FAF board of trustees Robert Denham said the size of the standard-setter’s board was changed because the trustees felt a five-person board could operate more effectively, be more cohesive and move more quickly on the task of convergence.

The changes come at a time when US accounting organisations are looking at the impact of converging US GAAP with IFRS to create one set of global accounting standards. AICPA’s senior vice-president for member competency and development, Arleen Thomas, said the institute regarded the current size and composition of the FASB board to be appropriate given the work load and the diverse experiences required. “I do wonder how a board of a smaller size will work and… we felt that the proposal was premature. Having the seven members that we have today does allow them to outreach to their constituencies, which is a very powerful part of the work… to understand how their standards are being applied,” she said.

Thomas said the AICPA would have preferred to review a blueprint for convergence with IFRS before changes were made to the governance structure. “We recognise the power of the global market and the importance of one set of accounting standards in those global markets,” she said. “We would like to continue to see the US Securities and Exchange Commission and the FAF continue to explore and bring clarity to the vision to bring us to international standards.”

However, Denham argues that the changes will speed up the convergence process. “Our reading of the environment is that there is, and there should be, some significant time pressure for moving to convergence. We could have sat back and said ‘OK, we are not going to change anything until there is a clear agreement on a path’, but our attitude is that we did not like accepting such a passive role on something that is as important as this is,” he said.

Ellyn Brown, an FAF trustee who chaired the special committee on governance that proposed the changes, said a smaller board and a fresh approach to managing staff and resources could increase the number of perspectives being offered to the board.

Another important change to the FASB structure is allowing the chairman the power to set project plans, agenda and priority of projects, following the appropriate consultation. Agendas of the FASB were previously set by a majority vote.

Nicholas Moody

STRUCTURAL REFORM FAF-approved changes

FAF • Board size of trustees from 16 members to a flexible 14 to 18 members • Trustees’ term length from three-year terms to single five-year term • Expand number and breadth of entities invited to nominate FAF trustees • Increase trustees’ governance activities

FASB • Reduce board size from seven members to five, effective July 2008 • By-law now requires board members to possess investment experience • FASB chair can now set FASB project agenda following consultation

GASB• GASB chair can now set GASB project agenda following consultation

Source: Financial Accounting Foundation 

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