Welcome to Luca!globe
Reflections on Ten Years of Standard Setting Current Issue!    Navigation Tips!
Main Menu
CPA Journal
Professional Libary
Professional Forums
Member Services

Reflections on Ten Years of Standard Setting

"NO REGRETS: I WOULD DO IT ALL THE SAME WAY AGAIN."An Interview with Dennis R. Beresford
By James L. Craig, Jr.

A Statesman at the Helm

Dennis Beresford stepped down as chair of the FASB on June 30, 1997, after 10 years of service. He leaves to begin a third career--public accounting and standard setting being the first two--as a professor at the University of Georgia. In this interview, Beresford recalls and relives some of the important developments and events over those 10 years: more lobbying through-

out the standard setting process, the impact of moving to a super majority for board decisions, an increasing role for international accounting standards, and the difficulty in being both moderator and voting board member. He also speaks of the future role of FASB in a more global economy and as overseer of perhaps an expanded financial reporting model.

In Brief

Managing editor James L. Craig, Jr., met with retiring chair of the FASB Dennis R. Beresford to discuss his accomplishments, disappointments, and lessons learned as chair of the FASB for 10 years.

The CPA Journal: Like the good camper or environmentalist, have you left the standard setting scene in as good or better shape than as you found it?

Dennis Beresford: Given that there is no writing from on high that there must be an FASB, I think we have worked--quite successfully--through some very difficult periods and issues over these 10 years. It would be presumptuous of me to say we are in better shape. However, I do believe that the board as an institution is in no way less positioned to do the job that it was established to accomplish. As throughout its history, the board continues to be challenged on individual issues. For example, should the value of stock-based compensation be recorded or just disclosed? But I think there continues to be overall support from the various sectors of those affected by our work. That was shown when the SEC raised the issue of the makeup of the Financial Accounting Foundation. Some of our toughest critics rallied to FASB's side when the prospect of removing standard setting from the private sector was raised.

CPAJ: How are things different than when you first took over the chair?

Beresford: An aspect of change is the way special interest groups and others having a concern about our decisions participate in the process. In the past, these groups used the formal comment period for an exposure draft as the main focus of their lobbying efforts. Now we receive comments throughout the process. Today I received two letters--one on a project that is in the very early stages and the other on our hedging and derivatives project for which the comment period is long past. As a board, we attempt to deal with all comments no matter when they are received--but that can add time. I think this is healthy. The process has always been open, but now it is almost a real-time, interactive process.

CPAJ: It seems to me that you have tried to obtain more user input to help in your deliberations.

Beresford: We certainly have tried. We started at such a low base, that anything that we have done represents a sizable improvement. Having Tony Cope, formerly from the investment community, on the board has helped, and we do have more interaction with the Association for Investment Management and Research and Robert Morris Associates, representing the financial analyst and bank lender communities.

CPAJ: You also do more field testing.

Beresford: We have done some sort of field testing on most of our projects over the last eight or nine years.

CPAJ: And the standards seem to be more complex and intricate?

Beresford: We tend to respond to market demand. For example, in the case of the derivatives project, we are finding that corporations and others are willing to accept more complexity if the end result is a standard that better reflects the nature and purpose of transactions as they see them. The standard may be more complex, but it makes it more acceptable to them. A simple standard for derivatives would be to record them at fair value, with all changes reflected immediately in income. But those transacting in derivatives do not think such a standard properly reflects the economic reasons they enter these transactions. So the standards are more complex to make them more suitable for the world that must apply them. This is especially true for the large public companies.

CPAJ: Perhaps the movement toward complexity is part of the life cycle of standard setting. Although what AcSEC is doing--dealing with perhaps more basic issues such as software for internal use and start-up costs--is quite simple.

In any event, in my view, a major contribution you have made was to maintain a sense of integrity and professionalism about the whole process. I consider you to have been a statesman--taking it on the chin sometimes, but always responding in an open way, seeking to make improvements to the extent the system was willing to accept them. Without integrity, the standard setting process would soon crumble.

Beresford: I worked very hard to maintain the integrity and credibility of the board and the good work that preceded me. Openness and a willingness to listen are trademarks by which I would like to be remembered. I have also worked hard to be out in the world of those who must work with the standards we set. I estimate over the 10 years I have given over 300 talks. This was part of my approach in interacting with those we impact. I have encouraged all board members to be visible and a presence among our public. I have found that after board members have had a chance to interact in person with a group, an accounting firm, or other interested party those constituents understand our objectives and purposes better and are much more understanding and sympathetic of what we are trying to do.

CPAJ: This openness and willingness to listen and interact, I'm sure, has added to the time it takes to move a project along. You are here in your office early in the morning, and I'm sure over the 10 years you have spent a good deal of your waking hours involved in board activities.

Beresford: This has been my vocation and my avocation. I have not missed a single day of work in the 10 years. And yes, it may have added time, but with, I hope, a better end product.

CPAJ: Looking back over the 10 years, the board addressed some very difficult and important issues. The one that sticks out in my mind is the postretirement benefits standard. In many respects, the standard--a wake-up call to companies as to the true cost of health-care benefits--changed the face of employee benefits.

Beresford: It is perhaps the standard the board is most proud of--of all the items we dealt with over my term. It is a complex and difficult area to begin with, and companies strongly resisted our proposals. This may have been our best communications effort. Many CFOs, after it was all done, said we did them a favor by causing them to focus on this business issue. On the other hand, we used the same communications approach with the stock-compensation issue and were not as successful. Although, we are hearing from some circles--now that the value of stock options issued is being at least disclosed--as to why aren't the options being recorded as an expense. I still rate the stock-based compensation project as having been successful. The information is there...the marketplace is informed.

CPAJ: In looking back over the 10 years, is there anything you would have done differently?

Beresford: I'm not someone who tends to second guess or revisit past events. We do our best on a project at a particular time. Compromise is part of that to get the necessary votes and a reasonable degree of acceptance outside the organization. Second guessing is not helpful.

CPAJ: Why is it that FASB is not dealing with some of the unresolved, more basic issues, such as inventory valuation or revenue recognition?

Beresford: People don't ask us to. We are somewhat of a reactive organization. We tend to focus mostly on squeaky wheels. Although there is diversity in methods of pricing inventory or computing depreciation, we hear no groundswell for change.

CPAJ: One of the major developments during your leadership has been the movement away from the importance of the income statement to the balance sheet.

Beresford: There is the notion of the primacy of the balance sheet that has emerged. But the idea of restricting the balance sheet to real assets and real liabilities goes back to the conceptual framework that existed pre-Denny Beresford. But every time we look at complicated issues, whether it is pension accounting or postretirement benefits, anything that involves some element of the future, we often end up with elements of both--trying to get a reasonable balance sheet number and a reasonable income statement amount. In part, that's what has driven the board to develop the comprehensive income concept. We have a series of items that are reflected in stockholders' equity, which are compromises to the purity of the balance sheet concept. Deep down inside, I'm a clean surplus kind of person. But when these contentious issues were staring me right in the face, the approach we have taken seemed to be the right thing to do at the time.

CPAJ: What advice will you be giving to your successor as he or she takes the reigns?

Beresford: My one piece of advice would be to not pay any attention to my advice. I think fresh ideas are a benefit of leadership change. It is important for my successor to learn what we are doing and why we are doing it. After gaining that understanding, he or she should question the whys. The new chair needs to understand first, then make changes. I would not want that person on day two to begin to make dramatic changes.

CPAJ: How has it been working with the board, both acting as moderator of the proceedings, yet always having to make a decision yourself?

Beresford: This has been a source of frustration, perhaps more to outsiders than to the board itself. Some question why we can't get things done more rapidly. The rules are such that I have one vote just like everyone else. Observers continually make suggestions to improve the process, especially to move projects more quickly. A recent vague suggestion was to somehow give the chairman more authority. When asked what specifically they have in mind--should he have two votes, or eight votes--I got the idea that they really don't want to give the chairman more authority, they just want the projects to move more rapidly.

CPAJ: What do you think of the move to the super majority?

Beresford: I don't think it has had much impact. However, I think the change to the 5-2 vote was made for the wrong reason. The stated purpose of the change was to make the decisions of the board more acceptable. The thought was that our public, seeing a 5-2 vote, would be more willing to accept the outcome. That is basically nonsense. Our stock compensation exposure draft was issued with a 7-0 vote, and everyone hated it. The reality of the change, however, was the desire of some--some preparers, accounting firms, and others--to slow the process down, by making it harder for the board to reach agreement. The SEC could have interceded to maintain the simple majority, but chose not to.

CPAJ: Has it slowed things down?

Beresford: There probably are a few instances where it has caused a delay. And it has led to more compromise, but not to any major extent. Perhaps oddly, the GASB went to a seven-member board on July 1 of this year, but the trustees of the foundation kept the simple majority rule. I hope the trustees will reconsider our voting requirements in the near future.

CPAJ: We had the attempted takeover of the standard setting process by the FEI a year or so ago, leading to the addition of public members on your oversight body--the Financial Accounting Foundation.

Beresford: I wouldn't quite call it an attempted takeover. The FEI reacted to an invitation given to them by the FAF's trustees. True, some of the FEI's recommendations were pretty outrageous, but we did ask. I also think it received more publicity than it deserved. But more importantly, the end result of some lengthy discussions that followed the FEI recommendations was a very important change to the structure and fundamental organization of the process. Having four more truly independent or public oriented trustees on the foundation is a major positive development. They have already made a significant contribution, not the least of which is to cause all the trustees to be more focussed and

CPAJ: One of the important duties of the foundation is fund-raising to fund the board's activities. The impression we get is that contributions are declining and revenues are under pressure.

Beresford: Our financial support is quite adequate. However, there has been a slow decline in corporate contributions over the years. Public accounting contributions have been steady. But a smaller and smaller part of our budget is being funded from contributions. Two-thirds of our revenues come from sales of publications. But we don't want to give the impression we are too dependent on issuing more publications just to support our budget--that would detract from our primary purpose. Also we have invested our reserve funds in equities, which for our last fiscal year produced a return leading to an overall excess of revenues over expenses of about 21Ž2 million dollars. Our trustees are trying to spread the funding over all our constituencies--users and preparers, as well as accounting firms. We would like to get more public companies to contribute to broaden the base. This is more a philosophical approach than a financial need.

CPAJ: You have the Financial Accounting Standards Advisory Council (FASAC) in the picture as well. Are they contributing to the process?

Beresford: Yes, but they are an advisory group rather than a decision making body and that may be frustrating to some of the members. Our most recent meeting was particularly good, with the members advising us how to better communicate the results of some of our newly completed projects.

CPAJ: One of the FEI's suggestions was that FASAC help set your agenda?

Beresford: We discussed having FASAC establish a committee to become more involved in helping the board members deal with agenda items--we don't think FASAC should actually establish the agenda. But FASAC likes the process that presently exists where the full group talks with us about issues.

CPAJ: The AICPA Special Committee on Financial Reporting recommended an expanded financial reporting model that would include nonfinancial and forward looking information. Most parties in the financial reporting scheme believe the information is important, but no one has stepped forward to set guidelines or standards for presentation of that information. The SEC thinks it's a private sector issue, the preparer community basically wants no more rules that it might be forced to follow, and user groups are not organized to do anything. Recently the AICPA has suggested that FASB is the organization that can best set standards in this area.

Beresford: We have been thinking a lot about this issue and hope to have a more formal position in a few months. We do think it is appropriate for us to take a leadership position, but we want to make sure we have a "followership" as well. There is concern because of the response to our invitation to comment of last year on the special committee recommendations. We received a limited number of comments, and as you have suggested, there was no groundswell for FASB to get involved beyond its traditional turf of historical financial information. Even the Big Six accounting firms' responses were on balance tepid. We have had recent discussions with AICPA leadership, Mike Sutton, chief accountant of the SEC, and FASAC. Our plan is to continue to move forward, but we will be looking for buy-in. We are thinking about a series of projects and will ask major accounting firms and perhaps FEI and users to help participate to leverage our activities and make sure we have support. I see our next major step as moving to develop a blueprint or framework for these additional disclosures.

We will also be working with the SEC and perhaps the accounting firms to identify redundancies between FASB and SEC reporting that could be eliminated.

CPAJ: This may be a place for FASB to make a contribution?

Beresford: Yes. We think financial statements are still extremely important, as a credibility baseline. Additional disclosures would still need that baseline. I don't think financial statements as we know them are less relevant, as some have said. But other information as part of the whole package is becoming more and more important. It, however, does not have the credibility baseline of audited financial statements. As long as companies provide this other information in a way reasonable people believe is credible, there will be less of a need for standards. But if abuses start to become known, and the public gets burned, there could be a cry for guidance and independent auditor involvement. There is an incentive for preparers to take the high ground on these disclosures.

CPAJ: Do the board members have the background, experience, and competencies to deal with nonfinancial and forward looking information?

Beresford: I think so. Obviously, the current board was not chosen with this criterion in mind. But they have strong experience in financial statements and business in general. They can handle this challenge. Every issue we deal with becomes a place for education and in-depth learning. Consider what we had to learn about the business of derivatives. We are always able, for which we are thankful, to get people to educate us on the new areas in which we seek to strengthen standards.

CPAJ: Your view of the place and importance of international accounting standards has changed considerably I would say over the last five years. You are now working with standard setters from other countries and taking note of the work of the International Accounting Standards Committee.

Beresford: This is perhaps our most important accomplishment of late. Having been a member of IASC before joining the board, I had an interest in expanding our work to give more weight to international standards. At the same time, events were happening that elevated the importance of accounting standards to international securities markets. We amended our mission statement in 1991 to say something about the importance of high-quality international standards.

We are at a crossroads. IASC is making a huge push to develop core standards by early 1998 that will be acceptable to the international organization of securities market regulators, of which the SEC is a member. This with the hope that foreign companies will be able to more easily come to the U.S. capital markets.

CPAJ: No doubt there will be pressures from the U.S. exchanges, and therefore the SEC, to accept international standards in filings here.

Beresford: The SEC has said it is committed to high-quality financial reporting and presumably will not be agreeable to international standards that would erode or taint the integrity and quality of U.S. markets. That does not mean that international standards will necessarily be equivalent to U.S. standards. The issue will be the quality of the deliberations and conclusions.

I don't see how IASC will be finished by early 1998. There is still much for them to do. And they need to follow due process. So far its due process has not had the trial by fire that ours has had. At present, no one has to follow IASC standards, and therefore there have not been interest groups that have challenged its proposals as they have here.

CPAJ: But doesn't IASC take note of the work you have done and the roads you have traveled?

Beresford: Yes they do. But they also look at the work of other national standard setters. And there is also bias on the part of some IASC members to shy away from the U.S. way. This will perhaps be the biggest challenge to my successor. What should the role of the FASB be relative to international accounting standards? My own view is that we are the premiere standard setting body in the world and that we should remain so. However, we will need to do more and more projects in tandem with other national bodies and with the IASC itself.

CPAJ: What's happening with the accounting for segments? You and the Canadian body are working on a standard at the same time that IASC is doing its own thing.

Beresford: In some ways the IASC standard is just getting to the level of our existing standards for segments in FASB no. 14. We concluded that that standard had outlived its usefulness based upon our conversations with securities analysts. We had hoped to move the joint U.S./Canadian standard and the IASC standard closer together.

CPAJ: Is there life after the FASB for you?

Beresford: I am starting yet another career, this time on the campus of the University of Georgia. I will be executive professor of accounting, a full-time member of the faculty. They expect me to stay reasonably active in the profession, participating on committees, doing public speaking, and writing. I am definitely not retiring, but I do hope to improve my lousy golf game.

CPAJ: It has been a privilege to meet with you from time to time over your 10 years as chair to talk about professional issues. You have been always accessible and helpful to us in keeping our readers informed on the important work of the board. We express our thanks and wish you the very best. *

The CPA Journal is broadly recognized as an outstanding, technical-refereed publication aimed at public practitioners, management, educators, and other accounting professionals. It is edited by CPAs for CPAs. Our goal is to provide CPAs and other accounting professionals with the information and news to enable them to be successful accountants, managers, and executives in today's practice environments.

©2009 The New York State Society of CPAs. Legal Notices

Visit the new cpajournal.com.