The Financial Accounting Foundation (FAF), the organization that oversees the Financial Accounting Standards Board (FASB), announced a change in the head of the FASB. Chairman Ed Jenkins will retire on June 30, 2002, and PricewaterhouseCoopers Partner Robert H. Herz will become the fifth chairman in FASB's 29-year history.
Mr. Herz's appointment puts an end to speculation that FAF might appoint a chairman from outside the Big Five. The speculation had been fueled by recent turmoil, as critics called for more independence in standard-setting, competition with international standards, and careful balancing of new-age vs. old-fashioned accounting.
- Independence and competition. Mounting criticism of the Big Five's influence on standard-setting boiled over at recent Congressional hearings, when witnesses blasted FASB's vulnerability to business pressures from the Big Five firms and their clients. In response, lawmakers are considering legislation to require more direct oversight of FASB by the Securities and Exchange Commission (SEC), provide government funding to help ensure FASB's independence, and encourage the SEC to choose more freely between FASB's standards and those of the International Accounting Standards Board (IASB) on which Mr. Herz currently serves as a part-time member.
- New-age vs. old-fashioned accounting. Another area of criticism involves "new age" accounting, a subject on which Mr. Herz recently co-authored a controversial book. His book, which was published shortly after the bursting of the dot-com bubble, advocates recognition of intangible assets and greater use of non-financial, "soft" measures. In a critical review, the Economist said soft measures could end up being used to hoodwink investors, and auditors would be unlikely to catch any misleading figures. The review, which was published months before the Enron collapse, quoted former SEC Chairman Arthur Levitt as saying, "Accounting firms have a difficult enough time auditing the hard numbers, let alone the soft ones." ("Touchy-feely," Economist, May 17, 2001)
In commenting on Mr. Herz's appointment, FAF Chairman Manuel H. Johnson said, "Bob is widely recognized in the U.S. and abroad for his strong technical background and grasp of complex accounting and financial reporting issues. His experience will be a tremendous asset to the FASB as standard-setting faces tougher challenges in a changing marketplace."