Congress Should 'Butt Out' of FASB Issue

J. Edward Katz, an accounting professor at Penn State University, claims members of Congress don’t understand the accounting issues at hand in the recent controversy over a proposed Financial Accounting Standards Board (FASB) ruling regarding the accounting treatment of merging companies.

FASB is proposing doing away with the pooling of interests method of accounting when companies merge. Katz described the effects of the pooling method as resulting in situations where “investors cannot read the financial statements” of companies whose assets and liabilities have been pooled. Katz believes pooling gives managers an opportunity to create and display fictitious revenues, and to create gains, which can result in “a fraudulent statement of the firm’s earnings.”

Detractors of the proposed FASB ruling claim the ruling would stifle mergers and restrict U.S. economic growth.

California Congressmen Christopher Cox (R) and Calvin Dooley (D) have introduced legislation in an attempt to delay implementation of the proposed FASB standard, claiming it would reduce incentives for business combinations and, as a result, harm the high-tech industry.

Most importantly, Katz claims Congress should “butt out” because the FASB should be allowed to do its job. “If Congress intervenes, it would damage whatever authority and credibility the FASB possesses.”

http://www.postnet.com/postnet/news/wires.nsf

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