The Federal Accounting Standards Advisory Board Already Is Independent

Article excerpt

The Fall issue of The Journal included an article titled, "Can the Federal Accounting Standards Advisory Board Be More Independent?" The article's thrust is that the Federal Accounting Standards Advisory Board (FASAB) is not fully independent because two government agencies, the U.S. Office of Management and Budget (OMB) and the U.S. Government Accountability Office (GAO), have veto power over the board's issuances- which the article acknowledges has never been used. The other major concern expressed is that the selection process for the public members has resulted in some members lacking independence.

The article bases its position on the persistent split between the government and public members on controversial social insurance issues and the authors' belief that the "federal government continues to dominate FASAB by threats of veto." It then posits that the appointment of new members to replace members whose terms had ended at the time the social insurance exposure draft was being considered might have been used to prevent issuance of a standard consistent with an earlier majority view held by the then-public members. Finally, the authors suggest that more nonfederal participants' points of view could be discovered and considered, if only the principals provided FASAB with additional funding.

The article's conclusion seems to be that since FASAB's independence is not "complete" or "perfect," it is not appropriate for FASAB to continue as is. Since perfection, particularly as hoped for by the authors, is typically never achieved, it is worthwhile to examine the situation.

* Independence for any Federal Entity

The first aspect is whether an entity not under the government's control should be empowered to dictate to the federal government. The federal government is sovereign. It is a democracy that must remain accountable to the people that elected it, not to a body of non-elected individuals. The government cannot yield this sovereignty to FASAB, any more than it can or should yield sovereignty to the World Court or the United Nations.

That said, the key to assuring independence is to first examine the merit of each of the authors' contentions, and then consider how to achieve an effective FASAB that is not just independent, but able to issue relevant, meaningful, helpful standards designed to advance the public interest.

* The 'Veto' Power and its Impact on Independence

The interesting aspect of the veto power is that initially the two principals - OMB and GAO - could exercise their veto by simply not approving a FASAB issuance. The change made to achieve the AICPA-requested independence - which the article neglected to explain - was that FASAB issuances now become standards in 90 days unless rejected by either of the principals. (The lengthening of the period to 180 days cited in the article was made, in part, to accommodate the frequent changes in the principal agencies' senior leadership and hence a need for additional time to become familiar with a proposed standard, particularly if the proposal entails highly technical, complex matters.) Hence, if a principal desires to veto, he must now take a positive action. He would, of course, be expected to state why he took that action. Given this visibility, it is highly unlikely that a principal would veto a proposal for political reasons.

The article also suggests that even the threat of a veto undermines the board's existence and independence. But that is akin to expecting FASAB to work in a vacuum. I posit that it is better to know what is considered relevant before the board issues a standard. In that way, the board can shape the standard to what is relevant, rather than issue a standard only to have it vetoed because of irrelevance.

* Selection of FASAB's Members

The article's appointment of new members' argument rests on the fact that during the deliberations on social insurance, the six public members voted to issue a Preliminary View consistent with the authors' views but the four federal members had an alternative view. …