Robert Herz, chairman of the Financial Accounting Standards Board (FASB), will retire as of October 1, two years before his current term expires.
The announcement was made by the Financial Accounting Foundation (FAF), which oversees the administration and finances of the FASB. FASB member Leslie Seidman will become acting chairman. The FAF also announced that the FASB will be expanded from five to seven members to help it better address future challenges.
“My more than eight years as chairman of the FASB has been among the most professionally challenging and personally satisfying of my career,” Herz said in a statement. “I offer my deep appreciation to my fellow board members and our dedicated and talented staff. I’m very proud of our accomplishments and I’m confident the board will continue to successfully meet the challenges ahead.”
Herz presided over the FASB during a tumultuous period which began in 2002 with the collapse of Enron. In 2009, Herz was called to testify in Congress about FASB’s position on mark-to-market accounting, Statement 157, Accounting for Fair Value, which many saw as a contributing factor to the financial crisis.
Herz defended FAS 157 in his testimony, but, soon afterward, FASB issued staff positions that called for the introduction of the concept of distressed markets to the Statement. According to Herz, the staff positions “reaffirmed the need to use judgment to ascertain if a formerly active market has become inactive and in determining fair values when markets have become inactive." The board continues to support the application of fair value accounting to financial instruments, most recently to loans.
During his tenure, FASB’s joint efforts with the International Accounting Standards Board (IASB) on standards convergence and the movement in the U.S. toward adoption of International Financial Reporting Standards gained momentum. Recently, however, progress in these areas has slowed.
"Bob Herz led the FASB during the most challenging time in its history,” said Stephen Chipman, Grant Thornton LLP CEO. “He has been a tireless leader with an unwavering focus on the users of financial statements and we are grateful for his service to the profession and wish him well in his retirement. We also extend our congratulations to Leslie Seidman as she takes up the mantle as acting chairman and stand ready to help her and the FASB establish accounting standards that are right for the marketplace and for the dynamic organizations we serve."
In his statement about Herz’s pending retirement, Barry C. Melancon, president and CEO of the AICPA, stated, “Bob Herz played an important role in the development of accounting standards during a critical time. As FASB chairman, he pushed for more disclosure and better reporting on behalf of investors. The entire profession is grateful for his service. His intellect and humor will be missed.”
Melancon went on to say that the AICPA looks “forward to working with Acting Chairman Leslie Seidman and three new members to be named to the board as they grapple with converging U.S. and international standards. Now more than ever, it is imperative that the Financial Accounting Foundation, working with the blue ribbon panel, find an innovative solution to the problem of addressing the need for private company standard setting in the United States.”
The surprise announcement has led some commentators to speculate on the reasons for Herz’s retirement. Herz had reduced the number of FASB board members to five and the announcement of the return to seven might indicate differences with the FAF, according to Ronald Fink, writing in CFOZone. Fink wrote that “the change is obviously a repudiation of Herz on that point, and it's one that could very well mean a lengthier, more obscure and politically compromised process that yields poorer accounting.”
Looking ahead, others, including David Reilly, writing for The Wall Street Journal, speculate that opponents of mark-to-market accounting, principally banks, might support a successor to Herz who will be more open to their point of view.