By Anthony H. Sarmiento
Dedication to Quality
As a FASB member since 1987, James J. Leisenring has been able to capitalize on his career-long interest in financial reporting and the auditing of financial information. At the close of his term on the board this July, Leisenring’s love for and commitment to high-quality standards remains as intense as it was when he first joined FASB as its director of research. He believes that accounting standards should be judged and implemented on the basis of their quality, and that FASB can be a positive force for change both domestically and internationally. He is realistic, however, about the impact that one person can have on the Board—and that FASB can have on the greater marketplace.
Leisenring has long been involved in the international arena through FASB and the G4+1, and in his new position of director of international activities at FASB he will continue to influence the course of international standards. He thinks that international standards setters should move quickly toward convergence but cautions that in many cases, there are barriers that go beyond accounting standards.
From early in his career, James J. Leisenring’s dedication to technical issues has meant involvement in professional associations, at first the state and then the national level. Leisenring has spent time at a small firm, becoming a partner and director of accounting and auditing at Bristol, Leisenring, Herkner & Co. in Battle Creek, Mich., and also in academia, serving on the faculty at Western Michigan University. His active involvement in the Michigan Association of CPAs’ (MACPA) technical committees naturally led, through relationships with people like Art Wyatt (FASB member XXXX–1987), to involvement in AICPA committees—including membership on the Auditing Standards Board (ASB), which Leisenring chaired the last three years of his five-year tenure.
Leisenring’s work at the ASB demonstrated an interest in and intellect for standards setting, which led him to accept the position of director of research and technical activities at FASB in 1982. In 1984, he became the first chair of the Emerging Issues Task Force (EITF). After five years as EITF director of research and technical activities, he was appointed to FASB in October 1987 and became its vice chair in January 1988. Coincidentally, Leisenring took the resigning Wyatt’s seat on the Board.
Keeping Up with the Times
Even though the profession has undergone enormous change during Leisenring’s career, his interest in financial reporting and auditing has remained constant. Keeping standards and regulations current has not been an easy task, and Leisenring admits the challenges are significant.
"Financial reporting has not changed as much as it probably should have,” Leisenring said, conceding that FASB may be partially at fault but that the causes are more complex and blame difficult to assign. “FASB has long been an instrument for change in a world incredibly well organized to resist change. Whether resistance to change is greater today than it was twenty years ago is very hard to determine.”
Leisenring acknowledged that accountants have held on to traditional methods longer than investors have and that the two are sometimes in conflict.
"The world economy has chosen to finance itself by very new and sophisticated means, and accountants seem reluctant to accept that fact,” he said. “We can’t have the ‘good old days’ and continue to meet investors’ need for information about the types of transactions and events that impact business. I’m concerned not everyone recognizes this.”
Debating the Issues
"The Board has always been a very collegial body,” Leisenring said. “Given that the seven members work together constantly there has been very little friction over the years, even when we have strongly disagreed on technical issues. I suspect the shared sense of mission and the conceptual framework as a basis for decision-making smooth over what otherwise might be more disagreements.”
The service FASB members provide the accounting and business community is generally acknowledged, yet the pressures upon those individuals are widely underappreciated. Accounting standards often deal with issues that strike at the heart of special interest groups, and sometimes a compromise only ensures the dissatisfaction of all interested parties. Leisenring believes that on the whole, the Board does a good job of weighing the often conflicting interests of different parties. The FASB process entails soliciting opinions from as many parties as possible, many of which will disagree with the Board’s proposals.
"I have frequently felt strong opposition to conclusions and have certainly changed my mind many times as a result of the education one necessarily receives through the due process,” Leisenring said, regarding the dissenting responses FASB often receives to its proposals. “That disagreement seems to me to be constructive and inevitable.”
Politics. Opponents of particular proposed standards have increasingly found Congress a receptive audience. The most recent examples of this phenomenon are hearings and committee activity on the proposed standards dealing with business combinations and the elimination of pooling of interests accounting. The specter of direct government intervention in standards setting will always exist, but Leisenring perceives political pressure by special interests as generally ineffective. “That sort of pressure does threaten the existence of private sector standard setting but, more importantly, may interfere with the public interest in receiving credible information [needed] to make investment and lending decisions.”
Leisenring holds fast to his belief that the quality of standards alone should drive the standards setting process and determine whether a particular treatment is beneficial. “There can be no public interest in political intervention to change the information that would otherwise be available from the application of neutral standards based on concept.”
Pooling. Leisenring agrees with FASB’s current stance against pooling: “Pooling accounting is an aberration that destroys comparability, hides the investment made, and is thus distortional and can’t be justified conceptually.”
He said the volatile stock prices is not reason enough to back away from the purchase method of accounting. “The price paid to acquire net assets is the basis for our transaction-based accounting model,” he explained. “Why would you ignore the price paid just because the acquisition or purchase could be characterized as a business combination? If the currency is stock, the price paid is usually as clear as if it were cash. Just because the currency (stock) is volatile, again why would you ignore the price paid? If you bought a truck with one thousand shares of stock, would you ignore that price if the stock were volatile?”
According to Leisenring, FASB is not “dead set against pooling” any more than any other accounting issue the Board concludes needs resolution. “Purchase accounting also has problems,” he said, “and I think it’s time to focus on improving purchase accounting as the only type of accounting allowed for business combinations.”
The International Perspective
With his term as a Board member complete, Leisenring is staying on at FASB as director of international activities. This is not without irony, as Leisenring has been an outspoken critic of international standards and the inability of the International Accounting Standards Committee (IASC) to develop core standards suitable for cross-border financial markets. But with the recent IASC restructuring and his recent chairmanship of the G4+1 working group, Leisenring must be considered a prime candidate for membership on the soon-to-be-constructed, full-time international standards setting committee.
“The primary goal of international standard setters should be to develop a set of high-quality standards suitable for use throughout the world,” Leisenring said, regarding his vision of where international standards should be headed. “That will take a great deal of convergence toward answers to many issues other than those required by the international standards. It will also require changes to domestic standards in many jurisdictions.”
Leisenring believes that the major players must prioritize issues in order to quickly reach toward a common set of international standards as fast as possible. “We need to analyze the requirements of major jurisdictions and the IASC standards and determine how to maximize convergence in a short time frame. Obviously, that would take the efforts and cooperation of the major domestic standard setters as well as a real commitment from the new IASC.”
One challenge of developing truly international standards is the skepticism with which they have traditionally been viewed in the United States. Because the country already enjoys high-quality standards in U.S. GAAP, a respected standards-setting body in FASB, and an established accounting profession, most attempts to date at setting international standards have been perceived as having little to offer the U.S. investor.
“The FASB vision is for a single set of high-quality accounting standards suitable for both domestic use and cross-border filings in the United States,” Leisenring said. This would require a single set of international standards that meet U.S. requirements of both quality and approach. FASB’s approach has met with significant criticism abroad—especially in Europe, where some fear an Americanization of domestic standards. According to Leisenring, this convergence “will not happen quickly, but it should be our objective to achieve it as fast as possible.”
Leisenring admits that international convergence faces challenges on a number of fronts: “As is suggested by the SEC International Standards Concept Release, there are issues that go way beyond accounting standards that also must be addressed for truly high quality international financial reporting to be achieved.”
‘New Economy,’ New Challenges
One of the greatest challenges facing any standards setter today is keeping up with the fast-moving and increasingly complex business environment. The recent U.S. stock market boom has both increased and changed the nature of the information needs of investors. The “new economy” companies created and fostered by the boom operate with different timelines and priorities and claim that their financial results cannot be properly measured by traditional metrics. The financial reporting challenge for standards setters is to accurately portray such companies while not compromising the proven qualities of traditional methods.
In examining the complaints of new economy businesses, Leisenring questioned their motives. “If not having earnings is the ‘economics’ of the new economy, I’m not sure why reporting the fact that there are no earnings is wrong or isn’t relevant.”
Nevertheless, Leisenring admitted that the traditional accounting model does not easily accommodate new approaches. For example, a new economy company might be more concerned with building brand value in a developing market, making intangible assets a more significant component of the company’s financial picture. Leisenring said traditional approaches can still provide some insight. “At a minimum, shouldn’t intangibles be recognized when paid for in a bargained purchase? Yet, it is the self-characterized ‘new economy’ companies that say because intangibles are so relatively important to them they shouldn’t be recognized.” He also noted that it is this same concern about not fully recognizing value that is behind FASB’s position on pooling.
Leisenring’s skepticism has led him to believe that new economy companies are trying to have their cake and eat it too: “What they really don’t want is reduced future earnings where recognized assets are accounted for—a rather ‘old economy’ concern.”
A Service to Standards
Although his tenure on the Board has seen some pitched battles over controversial standards, Leisenring believes that FASB has provided an invaluable service to its constituents. “I am constantly amazed that the FASB critics that seem to be the most vocal are usually the very individuals that benefit most from the accomplishments of the FASB.”
Leisenring’s own critical thinking and unwavering commitment to high-quality standards have been a key component of FASB’s accomplishments.
In reflecting on his long service on the Board, Leisenring is modest about his contributions. “I doubt that I have contributed anything to the FASB that anyone else with the same effort and opportunity wouldn’t have contributed,” he said. Buried in this comment are the high energy, intense commitment, keen mind, and articulate voice with which Leisenring conducted himself during his years of service.
“The primary beneficiaries of our marketplace seem to be the most cynical about maintaining the fragile confidence investors place in the information they receive,” Leisenring said, putting the robust U.S. economy into perspective. He went on to say that quality accounting standards that accurately report the financial condition of a business entity are the essential underpinnings of prudent investment and economic success. “The FASB is committed to maintaining the relevance of and confidence in which investors view financial reporting. I have always been proud to have been associated with the FASB and believe it has been critical to maintaining the U.S. financial reporting system as the best in the world.”
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