The Board continues to provide new ammunition for its detractors. Required adoption of the ill-conceived FASB Statement 96 has been delayed twice, creating a five-year period of financial statement non- comparability,.

The publicly expressed complaints about the FASB usually focus on "Standards Overload;" the Board issues too many, too complex pronouncements. Statement 96 inevitably stands as the horrible example. The frequent enactment of major pronouncements by 4:3 votes is cited as evidence of the capricious nature of Board decisions.

Defenders of the Board reply, that its critics do not like the rigorous accounting rules that limit their ability to manipulate financial results. Both groups are somewhat off the mark. The Board cannot be accused of producing too much; its productivity is dismal. To the extent that there is production, it is often capricious and inconsistent, More important, however, is the lack of focus, purpose, leadership, and, most critical, quality.

LOW PRODUCTION

All the FASB Statements issued in the five years ended December 1989, with dates of passage and votes of the members.

Dedicated to reducing corporate income manipulation, the FASB seems to do a bit of its own, it could just be a coincidence, but half of its pronouncements in the last five years were issued in December.

However, as accountants know well, such tricks even out in the long run. in five years, the FASB issued 22 Statements. Even this embarrassingly low figure exaggerates. Statements 87 and 88 and Statements 90 and 92 were originally single pronouncements, divided at the last minute to split the opposition and obtain passing votes for each piece. This is a trick pioneered by the old APB.

In 1988 and 1989, the Board passed only one new Statement, restating the obvious conclusion that when a regulated company became deregulated, regulatory accounting no longer applied. The rest of the output of the past two years has either amended, suspended or delayed prior Statements.

Low output results in high unit costs. Annual expenditures for the thinking part of the Board's operation are about $10 million per year, equal to the yearly corporate contributions given to the FASB. Per- Statement cost is therefore an impressive, albeit meaningless 2.3 million.

More important, only six of the Statements issued in the last five years can reasonably be considered significant. The Board is not producing too much, it is producing too little. The nightmarish complexity of some of the new rules, particularly those regarding pensions and deferred taxes and the multiple years allowed for their adoption, conveys the false impression of a multiplicity of new rules.

However, some of the perception of "Standards Overload" may come from the energetic performance of other accounting rule making groups. Working mostly on unique, narrow issues and mainly impacting practicing CPAS, the Emerging Issues Task Force (essentially a franchised FASB operation), the AICPA, and the SEC issued a total 232 Bulletins," Releases," "Consensuses," and similarly titled missives during the same five years.

AVOIDING THE BIG ISSUES

Most of the Statements will be flyspecks on the history of accounting.

* few address genuine problems, but the Board has avoided dealing with major, unresolved areas of accounting, including:

* what is an asset? Why is the value of a steel mill in the balance sheet, but the name "Coca-Cola" excluded?

* When should revenue be recognized?

* What costs should be in inventory?

* Criteria for the choice of LIFO, FIFO or average cost.

* What is material?"

There are no authoritative standards on any of these areas. Instead of tackling such underlying issues, the Board debated two years over whether churches should be depreciated and continues to dance from one unrelated problem to another. After spending years and millions of dollars to develop a "Conceptual Framework," the board ignores the results.

LACK OF CONSISTENCY

There is little or no consistency between Statements; frequently there are glaring contradictions. For example, in 1985 the FASB issued Statement 87 on pension accounting, which required discounting of future pension expenses and liabilities. Less than two years later, the Board issued FASB Statement 96 (deferred taxes) which forbids present valuing deferred tax expenses and liabilities. Now, the Board plans to issue its edict on Other Post Employment Benefits (OPEB), requiring discounting.

The excuse for this mercurial behavior: A Board member told a group of financial analysts, "With discounting we would not have had enough votes to pass Statement 96!"

BARELY ACCEPTABLE ACCOUNTING PRINCIPLES

GAAP might be replaced by a new acronym, BAH, for Barely Acceptable Accounting Principles. Statement 87, the giant change in pension accounting was passed by a vote of 4:3. Statement 96, the backbreaking "straw" that caused the current furor, was adopted 5:2, following a 4:3 vote for Statement 95 on cash flow reporting.

A quarter of the Statements were approved by a 4:3 vote: another 20% by 5:2. Four of the six important Statements were passed by the irritating 4:3 margin.

Unanimity occurred only four times in 22 ballots. In 1988, the Board suspended Statement 93, the only new Standard approved 7:0. Characteristically, the vote for suspension was 4:3.

There are not even two "blocks" or factions, each following some consistent theory or bias. The members are just splintered. What would happen to the performance of a corporation if its board of directors or top executives always disagreed over their most important decisions?

LACK OF LEADERSHIP

Critics of the Board have attacked the split vote problem by advocating an increase in the votes required to approve a Statement. This misses the underlying problem. The splintered votes are simply another manifestation of the malaise that produces the dismaying quality, quantity, and consistency of FASB pronouncements-lack of leadership.

Successful corporations must define their goals and their products. Boards of directors and top managements take steps to coordinate research, production, quality and marketing into a coherent, profit making entity. After 17 years, the FASB has failed to develop comparable leadership and management. its trustees disclaim responsibility for the Board's Statements. Its Advisory Council has no power. Successive Board Chairmen have been unable to mold their highly talented members into any intellectual consistency.

Unfortunately, no simple solution exists for the management deficiencies at the Board, any more than simple solutions exist in corporate America. Proposals to change the voting or to appoint another layer of oversight will be futile. Although they may disavow it, the responsibility for management lies with the trustees of the Financial Accounting Foundation, which sponsors the FASB. Whether they will or can act is, unfortunately, conjectural.

DON'T KILL THE MESSENGER

Most recently, the FASB has responded to criticism with, "We are just the messengers bearing bad news," followed by a plea not to adopt the ancient Persian response. In effect, the corporations take the actions, the accountants merely carry die word. The U.S. Postal Service would appreciate such a tolerant approach. Accounting is the proper delivery of information; there is nothing else. The "innocent messenger" notion has no logic. The problem of accounting is to convey information correctly.

RETURN TO ACCOUNTING THEORY

There are practicable changes that can be made in the Board's philosophy which might improve the quality, consistency and utility of its Statements.

A few venerable accountants recall when accounting had a reasonably coherent body of theory. Then, practitioners were permitted-even required-to exercise professional judgment. The FASB has managed to move us from that era to a world in which accounting "theory" looks more like the Internal Revenue Code.

Examples: Statement 96 is only three pages shorter than the entire 51 Accounting Research Bulletins issued between 1939 and 1959 by the AICPA. The printed pages in five recent FASB Statements (Nos. 87, 89, 91, 95, and 96) exceed the total used in the 11-year life (1962 through 1973) of the APB, the FASB's immediate predecessor.

This cookbook approach, attempting to specify the exact accounting for the most minute application element, leads to a never-ending morass. Modern corporate transactions and financial instruments are too complicated and evolve too fast for the Board ever to catch up. Meanwhile, the huge gaps in the literature, such as "what is an asset?" continue to leave almost unlimited room for undisclosed manipulation of financial statements.

Under this mentality, Statements will continue to grow longer and require continuous re-interpretation. Statement 13 on lease accounting, almost 50 pages, has been amended by nine additional Standards and 10 Technical Bulletins. It now needs a complete overhaul.

Paper, however, is cheap and no one really worries about the state of accounting theory. The real problem is that almost no one understands the accounting rules any more. Certainly, the vast majority of financial analysts are left in the dark. It is impossible to teach the complexities of the new pronouncements in a classroom framework. Creative students are increasingly turned off by a profession that seems to require more memorization than thinking.

Auditors now know very, little about accounting principles, and accounting firms increasingly depend on detached specialists. Corporate accountants can devote their resources to understanding the Statements that apply to their companies, which often produces an unbalanced relationship between the company and the auditor.

FINANCIAL EXECUTIVES AND ACCOUNTANTS ARE MOSTLY HONEST

The self-defeating cookbook approach stems mainly from the view that the CFOs of American corporations will, given the slightest opportunity, manipulate their financial statements to serve their own purposes. Their auditors will permit anything that is not expressly forbidden.

An extract from the outraged fantasies of Abraham Briloff. No, merely a summary of the apparent guiding view of the FASB (and the SEC) and the main reason for the encyclopedic approach. If enough minutia are specified, manipulation can be stopped.

The author of this article has earned reasonable compensation by exposing manipulation of audited corporate financial statements. Nevertheless, most statements are not manipulated and most auditors are honest. The current Statements are written in a futile attempt to keep a minority of thieves honest.

Writing with the assumption that preparers and auditors are honest would permit far more general, less specific but comprehensible Statements.

CHOOSING IMPORTANT TOPICS FIRST

When critics complain about the subject matter of recent pronouncements, the Board insists that the choice of projects is dictated by demands of its constituencies. However, no one recalls demanding any of the recently issued Statements.

Corporate financial executives have certainly not asked for more work. Practicing CPAs are among the most vocal in complaining about "Standards Overload." Most leading academic accountants ignore financial reporting. The FASB ignores financial analysts. in recent years, analysts have repeatedly asked for better and more frequent lines of business disclosure, and disclosure of pension cash flows, among others. Their batting average is zero. The consolidation project was pressed by the SEC. With this exception, however, the FASB projects seem to materialize only from within the hallowed halls of the Board.

There are major areas of accounting that cry out for specification and are certainly more important than whether churches should be depreciated. The Board should exhume its Conceptual Framework project and establish a logical set of priorities.

THE ONLY ALTERNATIVE IS THE GOVERNMENT

The FASB never tires of warning critics that the only alternative to it is the U.S. Government. Supposedly, if the FASB were to fall-because of its carping critics, not its own poor performance-an eager Government would seize the opportunity to enslave all accountants, corporations and the free enterprise system in a bureaucratic nightmare.

It is difficult to envision any accounting rules more bureaucratic than those of the FASB. Neither the SEC nor any other federal agency has displayed the slightest inclination to assume the thankless task of developing accounting principles. The FASB is likely to stay in business for a long time. Let us hope for some improvement.