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A Chat with the Chairman of the Financial Accounting Standards Board

Gupta chats with Financial Accounting Standards Board (FASB) Chairman Russell Golden and Joseph Ucuzoglu, National Managing Partner of Regulatory and Public Policy at Deloitte, LLP.

Accounting Department Chair and Professor Parveen Gupta of Lehigh University knows the importance of regulating public companies. In light of the financial crises of the past several years, the landscape of conducting business has changed, as companies are being held to a higher standard of responsibility in their accounting and financial disclosures.

Some of the intricacies of those issues were explored during this fall's Deloitte Fireside Chat, a panel discussion Gupta moderated between authorities in the financial world. In recognition of the 40-year anniversary of the Financial Accounting Standards Board (FASB), Russell Golden, the board’s new Chairman, and Joseph Ucuzoglu, National Managing Partner of Regulatory and Public Policy at Deloitte, LLP, talked about what the board has achieved and what its role going forward might involve. Just a few of the topics they covered included the mission of the Board, investor protection, post implementation review of accounting standards, politics and lobbying influences in setting accounting standards, and international accounting standards.

Connecting the classroom to the world

Because Gupta enjoys bridging the gap between the professional world and his classroom whenever possible, he encouraged students from his undergraduate intermediate accounting class to submit questions directly to the host, the SEC Historical Society. He also got his departmental colleagues and accounting advisory board members involved in submitting questions to him.

“Chapter one of this course talks about the institutional environment surrounding the accounting standards setting. And each year, I teach this class, students ask me how important it is for them to know about the FASB and its standard setting activities. This year, I finally got an opportunity, through this broadcast, to demonstrate to them in real time why they need to pay attention to such issues.” Gupta said.

Gupta designed a writing assignment for later during the semester to ensure that all of his students listened to the broadcast which was roughly a one-hour conversation.

Tough questions

Gupta started the conversation with Russ and Joe by asking their views on whether, during the last 40 years, the FASB has delivered on its mission of providing investors with information that would be useful for decision-making. They answered by citing accounting standards such as share-based payments, pensions, business combinations and derivatives.

Gupta pushed the two guests on the current Lease Accounting Standard which has been a sore spot for the FASB for years now. Currently, the Board is reviewing the draft standard on Lease Accounting, and it has received more than 600 comment letters from its constituents, who differ significantly in their opinions.  Russ acknowledged that the lease transactions are the “largest off-balance sheet transactions in our economy,” so the Board needs to get the accounting right. Joe concurred by noting that real-life lease contracts “literally run in the thousands of pages with a series of highly complex rights in risks and reward that don’t always lend themselves to simply debiting a number and crediting an equal number on the right-hand side of the balance sheet.”

“Cost/benefit considerations are always important and need to be balanced whether you are setting accounting standards or writing financial or other regulation,” Gupta noted.

Russ acknowledged that no matter what “the investor is ultimately bearing the cost.” Joe added by saying that complexity in the accounting standards also drives the cost but accounting is complex because it is attempting to account for complex business transactions. However, under Russ’s leadership, the Board is acutely aware of the need to balance the cost-complexity trade-offs with attendant benefits to investors. 

Developing better standards

On behalf of his students, Gupta asked “why our elected officials in Congress, or for that matter, why the preparers, investors, auditors and other stakeholders lobby the FASB? What are these groups trying to gain by meddling into the FASB standards-setting?” The stock-option accounting saga of a few decades ago and the more recent fair-value accounting controversy are prime examples that the Board is not “left alone” to do its job on behalf of the investors.

Acknowledging the lobbying activity that occurs due to the economic consequences of the accounting standard setting, Russ emphasized that the board is always “trying to develop standards that neutrally reflect the economics of the transaction.”

Created with the mission to establish an improved financial accounting and reporting standards to provide useful information to investors and other users of financial reports, the FASB has to hear from its stakeholders. “At the end of the day,”said Ucuzoglu, “it's left to their professional judgment, those we've entrusted on the FASB to sort through conflicting perspectives, but it’s absolutely critical that voices are heard from a broad cross-section.”

“The FASB is the entity in the USA with the power to set accounting standards and rules for all public companies. All companies listed on the U.S. exchange have to follow these standards,” Gupta said.

The economic environment in which the FASB will find itself during the next 40 years is going to be a much different environment than the past 40 years, Gupta said. Irrespective of what FASB’s role would be in the world where pressure for international convergence is rising, Gupta noted that the U.S. accounting is the “gold standard” around the world, and FASB deserves a lot of credit for that.

Since the inaugural Deloitte Fireside Chat broadcast in 2009 by the SEC Historical Society, the series has examined such issues as exploring principles versus rules-based accounting and auditing standards, responsibility for preventing and detecting financial reporting fraud, and the Securities and Exchange Commission’s role in setting accounting standards.

“It was a tremendous experience for me, personally, to moderate this broadcast. I very much enjoyed it. I hope that my students found listening to it worthwhile.” Gupta said who traveled to Washington, D.C. to moderate this broadcast.

More information

The Deloitte Fireside Chats can be found in the virtual museum of the SEC Historical Society. The museum archives the history of financial regulation as well as provides access to primary materials to students, researchers, and others on the creation and growth of the regulation of the capital markets.

“This virtual museum is amazing. It’s pretty powerful and informative. I often use it to research materials to help me in my teaching and research. Hundreds of thousands of people visit the museum annually,” said Gupta, a member of the Society’s board of advisers. He serves on the museum committee, advising on the museum and archive’s growth and outreach. He has also served as an academic accounting fellow in the Securities and Exchange Commission’s Division of Corporation Finance.

Story by Manasee Wagh

Posted on Wednesday, November 20, 2013

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