“Seeing what the FASB is doing, one can rightly conclude that accounting is too important to leave to the accountants.”
Even with a new structure, the FASB’s process has been tweaked several times during its life. The FAF has changed the Board’s voting requirements three times and the number of members twice. The initial “super majority” requirement of 5-2, which was consistent with the prior two-thirds majority of both the APB and CAP, was considered too high a hurdle and was lowered in 1977 to a simple 4-3 majority. In an attempt to slow down the issuance of controversial statements, super-majority voting was reinstated in 1991, only to be reduced again in 2002 to simple majority, where it rests today. In 2008, the FAF reduced the size of the FASB to five members, only to restore it to seven members two years later.
After decades of inability by the Committee on Accounting Procedure and Accounting Principles Board to fashion a statement defining accounting’s basic concepts, the FASB finally developed a conceptual framework comprising seven Statements of Financial Accounting Concepts issued from 1978 to 2002. The Concepts Statements do not establish GAAP, but are intended primarily to “establish the objectives and concepts that the [Board] will use in developing standards of financial accounting and reporting.”(16)
The Board’s due process may militate against timely guidance for some new or emerging problems. In response, the FASB formed the Emerging Issues Task Force (EITF) in 1984 to resolve narrow implementation, application, or other emerging issues that can be analyzed within the context of existing GAAP. The EITF has 10-15 members (13 in 2012), chaired by a non-voting FASB appointee (in 2012 the FASB’s Technical Director). A consensus is reached if no more than three members object to a proposed position, and is subject to FASB ratification. The SEC has the privilege of the floor, may advise the EITF’s Agenda Committee when it believes that there is only one acceptable answer to an issue, and uses EITF meetings as a forum for making announcements that may or may not relate to a particular EITF Issue.
In 2009, the Board launched its FASB Accounting Standards Codification®, a major five-year effort to place all authoritative accounting standards for nongovernmental entities in one place. All previous US GAAP standards issued by a standard setter were superseded, and all other accounting literature not included in the Codification is considered non-authoritative. The Codification is a structural overhaul from a chronological standards-based model (with thousands of individual standards, including 168 FASB Statements) to a topically-based model (with roughly 90 topics). Relevant portions of authoritative content issued by the SEC and selected SEC staff interpretations are included for reference in the Codification. The FASB periodically amends the Codification through Accounting Standards Updates. In printed form, the Codification comprises four tomes, a far cry from the few pages of authoritative guidance of the mid-1930s.
A major issue challenging the FASB and the SEC is the international convergence of accounting standards. In September 2002, the FASB and the International Accounting Standards Board (IASB) began to work together to improve and converge U.S. GAAP and International Financial Reporting Standards (IFRS). In 2007, the SEC eliminated the requirement for foreign registrants that use IFRS as issued by the IASB to reconcile to U.S. GAAP. The SEC continues to encourage international convergence as it studies whether to allow U.S. registrants to use IFRS.