As part of post-Enron accounting reforms, lawmakers are considering government funding for the Financial Accounting Standards Board (FASB), the organization that sets U.S. accounting standards. This article explains the facts about FASB's funding and asks your input. To help you sort through the issues, below is a summary of the two main concerns, including explanations of FASB's current funding. The explanations incorporate insights provided by spokespersons for the American Institute of CPAs (AICPA) and Financial Accounting Foundation (FAF), the board that oversees FASB.
The Two Main Concerns
- FASB is funded in part by sales of its standards. In today's Internet economy, investors can download a company's financial statements and make low-cost online trades with the click of a mouse. But there are no easy answers for investors with accounting questions. These questions can still be costly and difficult to research, at least compared with the free Web-enabled literature searches provided by comparable governmental agencies, such as the Internal Revenue Service. A complete state-of-the-art electronic library of generally accepted accounting principles can cost $1,000 or more.
- FASB's biggest customers may be seen as buying influence. High prices and uneven spending patterns may lead some to believe that FASB's standards are vulnerable to undue influence by special interest groups, such as the Big Five firms and their clientele. Facts drawn from FAF's annual report, Form 990 and discussions with AICPA and FAF spokespersons indicate the following breakdown of FASB's $19.9 million funding in 2001:
- Gross contributions amounted to $6.6 million, of which $3.5 million was collected through the AICPA. Of this amount, approximately half ($1.7 million) was contributed by the Big Five. Dale Atherton, AICPA's chief financial officer, explains that AICPA apportions to FASB $2 from the annual dues paid by each of its members. The remainder (approximately $2.8 million) comes from a solicitation. The 2001 solicitation went to 10,000 firms and individuals. Approximately 5,400 responded, with 61% of the total dollar amount coming from the Big Five. In addition, other contributions, primarily from business and industry, are made directly to FAF. Details are not available at this time, but the Foundation is considering disclosing more in the future. The tentative plan is to release the names of donors, but not the amounts of their contributions.
- Licensing and royalty agreements contributed $4.6 million. These are agreements with intermediaries who sell electronic copies of FASB's publications in combination with other accounting literature. A FAF spokesman explains the intermediaries consist mainly of Big Five firms, as well as a few commercial publishers. Not all these products are available to individual investors. For example, Andersen is known to sell its product only to clients and prospective clients whose Web sites or e-mail addresses they can validate.
- Direct sales of FASB publications and subscriptions contributed $8.7 million. This category of revenues includes sales made directly to end-users. A not insignificant portion of these users are comprised of the Big Five firms, who often order publications for their partners and clients. For example, when overall sales of paper publications decreased in 2001, the decreases were offset by an increase of $0.3 million due to larger payments under agreements with major public accounting firms.
The Open Questions
- Why can't the standards be free? The FAF spokesman explained that the pricing of the publications is approved each year by the trustees of the Foundation when they approve the budget. One trustee testified to Congress that he believes FASB's publications ought to be free to everyone. Such an approach might help to dispel notions that individual investors or smaller practitioners are being forsaken, while the Big Five buy influence for themselves or their clients and profit from products that bundle FASB's literature with their own. But this solution will likely require government funding that can only be granted by an Act of Congress, and it may create as many problems as it solves.
- What other alternatives are there? Suggestions from AccountingWEB members are welcome and will be passed along to the Financial Accounting Foundation. Please feel free to comment on whether the current system is fair. If not, what should be done to fix it? How should FASB's funding and/or standard-setting process be amended to allow more attention to the needs of individual investors and small practitioners and their clients? Please use the comment area below to add your ideas, comments and suggestions.