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.