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By P. Norman Roy, president, Financial Executives Institute

These are tough times for an organization--any organization--charged with the responsibility of establishing accounting standards. Rapid technological change, the increasing complexity of business in a global environment, and new developments in the financial markets make a difficult job even more difficult. The Financial Accounting Standards Board faces a challenge to keep up with the times.

Is it up to that challenge?

Yes, but not without a cold, hard look at its structure and processes.

Our members have described the challenges their businesses face as a result of increasing competition, downsizing, and customers' demands for value-added products and services. Financial executives have learned well the lesson that no business can maintain the status quo and expect to survive into the next century.

The Financial Accounting Standards Board should be no exception.

Early last year the FASB began to develop a strategic plan that will guide it to the year 2000 and beyond. FEI supports this strategic initiative, and we are encouraged that several issues we regard as essential are identified in an early draft of the plan. But we don't know how thoroughly these issues will be addressed, since the FASB has not yet demonstrated an acknowledgment of constituents' concerns or acceptance of the need for change.

One of the major problems the FASB faces is the extraordinary length of time it has taken to resolve a number of issues. To overcome this problem, we recommend that the FASB involve its constituents more fully in the standard setting process and that it develop procedures to assure better control over, and timely competition of, projects.

We also recommend that the FASB make greater use of task forces, which would not only provide the board with the knowledge and insights of a number of experienced individuals, but would make available to the FASB a representation of a broader range of its constituents than is now possible. This would do much to make rules more realistic, which in turn would broaden their acceptance.

Giving task forces a more substantive role in the development of standards, coupled with a reorganization of the FASB staff, would make the board more efficient and effective. The size of the board itself might be reduced, further enhancing its efficiency.

There are other issues as well: The present "sunshine" rules are too restrictive and inhibit the FASB's efficiency. All standards should be subject to "sunset" review to assure that after a reasonable period of time they are doing what they're supposed to be doing. We believe that a subcommittee of the Financial Accounting Foundation or of the Financial Accounting Standards Advisory Committee representing the FASB's major constituents should have greater responsibility for setting the board's agenda. And the FASB needs to become more involved as a partner in developing international accounting standards. We addressed these concerns in letters to the Financial Accounting Foundation, the body responsible for overseeing the FASB's activities, in response to its specific request. While an article in The Wall Street Journal of February 8 portrayed our actions as a "behind-the-scenes campaign" to undercut the FASB's influence, our intent is in fact to strengthen it.

FEI strongly supports the FASB as the sole standard-setting body for U.S. GAAP, and we support its independence. But the need for change is urgent if the board is to retain its leadership. FEI wants and needs to be a constructive participant in the development of an action plan that will address structural and procedural issues of concern to all constituents. *

Reprinted with permission from Financial Executive, March/April 1996, copyright 1996 by Financial Executives Institute, 10 Madison Avenue, P.O. Box 1938, Morristown NJ 07962-1938. (201) 898-4600

[Editor's note: Commentators and reporters have filled their newsletters and newspapers with the alleged attack by FEI on FASB as a standard setter of accounting principles. This editorial has been reprinted from Financial Executive, the magazine of the Financial Executives Institute in order to set the record straight as to what the position of the FEI is. In the meantime it has just been learned that SEC Chairman Arthur Levitt is beginning to use his pulpit to preach reform that might include SEC review of the make up of the Financial Accounting Foundation. Based upon this editorial, this is not the end result desired by FEI.]

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