Steve Burkholder of BNA recently reported that the Investors Technical Advisory Committee (ITAC), an advisory group to the FASB, sent a comment letter to FASB's parent organization, the Financial Accounting Foundation, expressing “grave concerns” about a “substantial erosion in the independence of the accounting standard-setting process” and “a recent weakening of already inadequate accounting standards.”
In his article, FASB's Investors Technical Advisory Panel Notes ‘Grave Concerns' on Board Autonomy in the June 22 edition of BNA’s Daily Report for Executives, Burkholder wrote:
"ITAC, whose 13 accountant-members work as security analysts or investor advocates, focused in part on controversial guidance issued by FASB in April on fair value accounting and asset impairments — guidance affecting banks' valuation of troubled mortgage-backed assets central to the financial meltdown of last fall. The guidance was placed on an extraordinarily fast track after FASB's chairman was pressured at a House subcommittee hearing March 12 to have the board do what it could in a matter of a few weeks to alter fair value and impairment accounting rules, a target of lobbying by banking groups since last summer."
Specifically, ITAC stated in its comment letter:
"[S]pecial interests that have been instrumental in causing the current crisis, the effects of which are borne by hundreds of millions of individuals and families around the globe, have targeted one of the critical components of global capital markets, financial reporting and the transparency it brings, and seek to subvert it to their own purposes... We would remind the FAF that...political pressure bore the desired fruit: the issuance by the FASB on a highly accelerated basis with truncated due process, of standards that a number of investor groups and organizations including the ITAC stated publicly represented an erosion of high quality financial reporting. The standards resulted in a significant reduction in both transparency in the financial statements for distressed financial instruments, the so-called “toxic” assets, as well as delayed timely reporting of the problems. Many investors responded negatively to the reduced quality of information, as reflected in their investment decisions, but that response cannot compensate for the loss of information and, perhaps more importantly, the loss of trust and confidence in financial reporting and accounting standard setting."
To address their concerns about pressure on FASB's independence and due process, ITAC recommended the FAF take action on three fronts, by:
- reversing FAF's decision made in early 2008 as part of a restructuring of FAF and FASB which reduced the size of the FASB board from seven to five,
- reversing another FAF restructuring decision, in which agenda setting authority was moved from the FASB board as a whole to the FASB chairman, and
- increasing the role of the FAF as a buffer for the FASB, to guard its independence.
On this last point, ITAC recommended in its letter that FAF members act as a 'protective shield' for FASB by taking actions such as testifying before Congress (i.e., in place of FASB board members testifying directly). However, ITAC acknowledged it could be challenging to identify an FAF member with sufficient technical expertise to explain FASB's actions to Congress or others.
Read more here to see related comments of an FAF/FASB spokesman, and 'my two cents.'