Thomas J. Linsmeier has been a member of the Financial Accounting Standards Board since 2006. He has also served as an academic fellow and special consultant to the office of the chief accountant to the SEC. He was responsible for developing U.S. financial disclosure rules relating to the market risks inherent in derivatives and other financial instruments. In this interview with CPA Journal Editor-in-Chief Mary-Jo Kranacher, Linsmeier provided answers to questions about the FASB's future, its role in a movement toward international accounting standards, and the likely difficulties in applying and enforcing a global accounting framework.
The Future of FASB
CPA Journal Editor-in-Chief Mary-Jo Kranacher: Let's start with the FASB reorganization. Recently, the Financial Accounting Foundation solicited comments regarding the reorganization of FASB, and despite comments by various stakeholders that urged the proposed changes not be implemented, they were made nonetheless. Can you share with us your understanding of the purpose behind the restructuring, and your thoughts as to the likelihood of the success of the intended goals?
Thomas J. Linsmeier: I don't have any deep or personal insight into the actual thought process of the trustees and their recommendations. The stated goal in the proposals was to increase the efficiency and the effectiveness of both the foundation and the boards in a changing economic environment that, from the FASB's perspective, is most affected by the adoption of IFRS by many countries around the world. Therefore, an increasing focus by the foundation and the boards is the effort toward convergence in helping the implementation of IFRS in this country.
I believe those are the stated goals. The impact of those goals on our organization might be for us to move away from "riding two horses"-that is, maintaining and improving U.S. GAAP, while working jointly on converging U.S. GAAP with IFRS-and eventually move to one, in which case we would concentrate more on improving IFRS. Note that I didn't say converge, but improve IFRS, and the way to adopt IFRS in the future. I believe that's the context behind the recommendations.
Two key, controversial changes came out of the trustees' decision. One was a reduction of the board from seven to five members. Again, I don't have any personal insight into the reasons why the trustees made that decision, but we must recognize that the board was going to lose three members on June 30. And that loss of three members, when we're on an expedited process toward improving IFRS for its adoption, could very well slow down the process. I believe the primary reason to go to five board members may have been so we could be lean, mean, and more efficient by only adding one at this point, and so we could move forward on an expedited basis.
The other controversial issue was giving the chairperson singular responsibility for the agenda. If we're no longer maintaining and improving U.S. GAAP, there's not much agenda decision-making that we're going to need to do in that area. And in terms of the improvement of IFRS, that agenda will be based on updating the memorandum of understanding to decide what projects to complete before the United States adopts IFRS. To me, it is a rather innocuous change, because the chairperson doesn't have much control over the agenda.
The Credit Crisis
CPAJ: There's been some discussion here today about the current crisis that was initiated by the subprime mortgage problems and that has shaken investor confidence in the U.S. financial markets. A few issues have been cited as prolonging or worsening this problem, such as the use of special-purpose entities. Fair value reporting has been blamed for fanning the fires of panic in the market. Is the FASB planning to eliminate the concept of the special-purpose entities?
Linsmeier: Yes. We are planning on removing the accounting version of a special-purpose entity, called a qualified special purpose entity [QSPE] in the literature. …