Perspectives

February 2004

Economic & Market Data: Out of the Box

Kudos on “Economic & Market Data” (December 2003). It’s a well-conceived, well-thought-out, and clearly presented out-of-the-box addition to The CPA Journal. I especially look forward to the “Chart of the Month.”

David A. Lifson, CPA
Hays & Company LLP, New York, N.Y.

FASAB’s ‘Identity Problem’

The Federal Accounting Standards Advisory Board (FASAB) is indebted to Pierre L. Titard and Dean W. DiGregorio for bringing the FASAB to the attention of The CPA Journal’s readers. Their article, “The Changing Landscape of Accounting Standards Setting” (November 2003), will undoubtedly help resolve what they describe as FASAB’s “identity problem.”

Unfortunately, the article presents some outdated information and misinterprets the legislation underlying FASAB’s sponsors’ authorities.

Although the article correctly describes FASAB’s membership for the period of 1991 through June 2002, FASAB has since had a series of changes intended to enhance its independence. As a result, FASAB’s membership has increased from nine to 10 members, including six nonfederal members.

There are four members from federal agencies: the Office of Management and Budget (OMB), the Department of the Treasury, the Congressional Budget Office (CBO), and the General Accounting Office (GAO). Each of these members is selected by their respective agencies and is not subject to term limitations.

The Board’s sponsors (OMB, Treasury, and GAO) appoint the six nonfederal members after considering recommendations from an Appointments Panel. The panel includes representatives of the AICPA, the Accounting Research Association, and the Financial Accounting Foundation. The nonfederal members serve five-year terms. Each nonfederal member is eligible for up to 10 years of service. Significantly, the chairperson is a nonfederal member.

Overall, this results in a majority nonfederal board with six nonfederal votes to four federal. In addition, the federal members are balanced between the legislative and executive branches, with two members from each branch. The sponsors undertook these and other changes to demonstrate their commitment to an independent board.

Other independence enhancements resulted from changes that the sponsors made to the approval process. The article correctly notes that FASAB’s standards may be vetoed. In December 2002, however, the sponsors agreed to reduce the number of sponsors with veto authority from three to two, such that only the OMB and GAO representatives on the Board retain veto power. As a practical matter, the veto authority remains necessary due to limits on the ability of federal agencies to delegate authority.

U.S. Comptroller General David M. Walker explained these limits and traditional means for dealing with them in an October 19, 1999, letter to the AICPA Council. He stated the following:

[T]he Department of Justice has determined there are Constitutional issues involved with this issue that serve to limit how much authority the principals can delegate in this area … [S]imilar approaches have been followed by other government agencies in connection with the promulgation of accounting and reporting standards for multiple non-government entities (e.g., the SEC’s delegation of authority to the FASB in connection with the promulgation of accounting and reporting standards for public companies).

The article by Titard and DiGregorio indicates that the FASAB “provides four primary levels of guidance: concepts, standards, interpretations, and technical releases.” In addition, the FASAB provides technical bulletins, which provide the following:

• Guidance to clarify, explain, or elaborate on an underlying statement or interpretation,
• Guidance to address areas not directly covered by existing statements or interpretations,
• Interim guidance on problems in applying an existing statement or interpretation currently under study by the FASAB, or
• If applicable, guidance for applying FASB or GASB standards to federal activities.

To date, FASAB has issued three technical bulletins, addressing topics that include the process for issuing technical bulletins, judgments against multiple federal agencies, and the effects of the Homeland Security Act of 2002.

The section in the article titled “FASAB’s Source of Authority” contains some errors and the juxtaposition of the material presented may lead readers to a fundamental misunderstanding of relevant legislation, the authorities of our sponsors, the agencies and the evolution of federal financial management. Those interested in the legislative history and specific authorities are encouraged to study the referenced acts.

FASAB welcomes this opportunity to clarify some statements in the otherwise fair presentation of the FASAB as it functions as an organization and the role it has played, and continues to play, in the financial reporting of the federal government.

Wendolyn M. Comes, CGFM, CPA
Executive Director, FASAB

The Authors Respond

As in the title of our article, “The Changing Landscape of Accounting Standard Setting,” the landscape at FASAB is also changing. We appreciate the update by FASAB Executive Director Wendy Combs. Her comments on the recent changes at FASAB enhance our article for the readers.

Pierre L. Titard, PhD
Associate Professor, Southeastern Louisiana University

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