They feel that FASB subjugated itself by penning an agreement in 2002 to make existing standards fully compatible with the International Financial Reporting Standards (IFRS). Over the last 10 years, both boards have felt the strain of trying to meet the original agreement.
According to Miller and Bahnson, the FASB has now been liberated because it's become obvious that the SEC can not set the IASB as the standard-setting body under the Sarbanes-Oxley Act. This also frees them to do what they need to do without worry because their funding is assured and they are backed by the SEC, “the baddest big brother of them all”.
Now, in their opinion, is the time for reformation. It is time for FASB to bring GAAP into the 21st century by updating financial reporting standards and making them more relevant.
They believe the following should be FASB’s to-do list:
· Reporting Frequency – Dates back to the 1930’s for the stock exchange and the 1960’s for all other companies. In today’s fast-paced world, why are we still running on 1930’s time?
· Inventory – Managerial decision-making for LIFO or FIFO dates back to 1946. Time to fix the weak stance on the matter.
· Depreciation – Systematic Depreciation dates back to the 1830’s. No more dodging the question ‘How do we assess market value?’
· Leases – Accounting for leases hasn’t change since the 1970’s, and it’s time to create a new standard that doesn’t allow for bogus leases to create false financial information.
· Stockholder Equity – Should be limited to common stock only. Prefered stock, employee stock options and other derivatives should be listed as liabilities.
· Pensions – Pension obligations are debt. Pension funds are investments. They should be listed separately on the balance sheet.
· Cash Flows – We’ve been using the indirect method of reporting operational cash flows since 1987. Isn’t it time to start using what users wanted in the first place?
· Income Taxes – Is GAAP income tax reporting even useful? Perhaps it’s time to try the flowthrough method.
· Investments – Repeat after me: Fair Value.
As for consternation, Miller and Bahnson believe that making these necessary changes will create consternation for managers and auditors alike, but that shouldn’t stop FASB.
To be truthful, I chose this article because of the name. However, it will be interesting to see where FASB goes now that they have stepped away from the IASB and have decided they will not be incorporating IFRS.