Academic journal article Journal of Accountancy

Levitt Defends FASB

Academic journal article Journal of Accountancy

Levitt Defends FASB

Article excerpt

"What is the Financial Accounting Standards Board's great sin?" asked Arthur Levitt, Jr., chairman of the Securities and Exchange Commission. Speaking to the Economic Club of Detroit in May, Levitt was responding to a throng of criticisms leveled by corporate executives at the accounting standard-setting process and, specifically, at the FASB. "It has asked companies to tell investors the whole truth about their financial performances including exposure from their own investments."

Levitt, who titled his speech, "CPAs and CEOs: A Relationship at Risk," reiterated his support of the FASB and the standard-setting process, and he denied public and private charges by CEOs that accounting standards were crippling the competitiveness of American business. "In an era of global securities markets, it has never been more important for the United States to have a strong and independent body standing guard over our accounting standards," said Levitt.

The chairman mentioned recent debates between corporate management and the FASB, including the 1996 recommendations by the Financial Executives Institute to reduce the size of the FASB and the 1993 debate in which CEOs argued vehemently against a FASB proposal to account for stock compensation as an expense. The most recent skirmish centers on how companies account for derivatives, according to Levitt.

"We are in a situation in which the notional amount of derivatives outstanding has reached some $70 trillion," he said. …

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