In a paper released last week, T. J. Rodgers, chief executive officer of Cypress Semiconductor Corporation, blasted the Financial Accounting Standards Board (FASB) and generally accepted accounting principles (GAAP) for causing U.S. companies to move toward a second set of numbers known as proforma numbers.
Mr. Rodgers cites a PricewaterhouseCoopers finding that 74% of semiconductor companies issue proforma earnings statements. He says the reason is because FASB's rules no longer conform to reality.
"The root cause of the problem," says Mr. Rodgers is that FASB has "prioritized some dubious accounting theories over clarity of reporting, accuracy of reporting and even common sense." The theory most troubling to date seems to be the required use of purchase accounting for business combinations. But Mr. Rodgers is equally opposed to what he sees as a possible change in the accounting for stock options.
As an alternative, Mr. Rodgers proposes an approach popularized by former Securities and Exchange Commission Chief Accountant Walter Schuetze. He cites Mr. Schuetze's views about how accounting standards can be revised to improve the integrity of corporate balance sheets. "I think that we should define assets by reference to real things, not abstractions," explains Mr. Schuetze. "I think that we should define assets as follows: Cash, claims to cash, for example, accounts and notes receivable, and things that can be sold for cash, for example, a truck."
"If we can't get GAAP to work right," speculates Mr. Rodgers, "and that's my guess -- we will need to create a framework of standards behind proforma accounting to give it a real seal of approval." He suggests Mr. Schuetze for the role of chairman of the Proforma Accounting Standards Board (PASB), saying, "our FASB/government monopoly surely needs a competitor with common sense."
Download the full paper.