Reviewed by Dean Neu and Eric Powrie University of Calgary
I cannot give you the formula for success, but I can give you the formula for failure, which is: Try to please everybody.
Herbert B Swope (1882-1958)
American Journalist
This quotation holds true when it comes to establishing fi-nancial accounting standards. It is impossible to satisfy all, or even most, of those who will be affected by the standards.
Robert Van Riper, in his book Setting Standards for Finan-cial Reporting: FASB and the Struggle for Control of a Critical Process, provides a retrospective look at the competition that exists in financial reporting and its impact on the standard-setting process. Van Riper was a senior member of the Financial Accounting Standards Board (FASB) – the private standard setting body entrusted with the task of setting financial accounting standards – from 1973 to 1991 and is well qualified to provide an insider’s perspective on the opposition to both the FASB and some of its more controversial standards. For example, Van Riper details how opponents predicted that more stringent re-porting requirements would result in dire consequences for cor-porate America in their attempt to attract capital in the financial markets and to remain competitive in the world economy. Even with proof of these consequences nowhere in sight, the government and some corporations questioned whether the FASB ought to be entrusted with the task. Some practitioners have warned that the standards would not become “generally accepted,” charging that the theoretical bases for the FASB’s proposed standards have taken precedence over all practical considerations. Others have seen the Board as incapable of balancing the interests of financial statement issuers with those of users.
Van Riper defends the role of the Board. He believes that political neutrality and insulation from corporate lobbyists is the FASB’s greatest quality. If accounting standards were determined in response to politicized views, Van Riper argues, “only the very biggest and strongest would be left: holding the high cards” [p. 191]. Worse yet, accounting standards would become ineffective and internally inconsistent. This would create confusion for the preparers of financial information. “With the rules being set on a negotiated, case-by-case basis, they would not know how to anticipate the next rule making. The auditors and users of financial information would confront even greater confusion” [p. 191].
Van Riper chronicles why the FASB came into existence, the process by which standards are derived and many of the contentious issues surrounding the Board’s decisions. Van Riper does not take us by the hand on a guided tour of the so-called Ivory Tower but rather, through a compilation of quotes du jour from Board members and critics alike, the reader gets a sense of what guides the Board’s decisions. Through this dialogue, one gets the impression that maybe the FASB is not as insulated from the real world as many critics would have us believe.
A common complaint has been that de facto accounting standards were being established without due process. Van Riper rejects this claim citing that “the FASB is in the position of having a more open and democratic process than is required of federal agencies under the Administrative Procedure Act of 1947 and the Sunshine in Government Act of 1947” [p. 86]. He notes that public input is elicited on specific topics, the FASB meetings are open to the public, agendas are announced in advance and copies of the discussion papers are available in advance of meeting dates. The explanation offered by Van Riper for the perceived insularity of the Board is, “When strongly held views of constituents are rejected by the decision makers, even when good reasons are set forth for doing so, it is only human nature for the convinced advocates of the rejected views to complain that their position was not properly considered” [p. 104]. Interestingly, another often-heard complaint is that the FASB’s due process takes far too long.
While Van Riper admits that the FASB is not perfect, he does not offer much in terms of strategies for improvement. His arguments are made from the position that any alternatives to the present system will have far worse consequences. Van Riper acknowledges that the Board’s agenda does not always deal with the most important issues and resolution is not usually accomplished in a timely manner. He implies that greater speed in standard setting would result in a greater number of standards issued and this is bound to arouse opposition [p. 192]. To the suggestion that the Board position itself on the “cutting edge” and anticipate the most pressing and contentious issues, Van Riper flatly replies that “cutting edges are not greatly admired in the conservative world of financial reporting” [p. 193].
Van Riper’s account of the activities of FASB provides us with an insider’s perspective on standard-setting, albeit an ac-count that does not stray far from the “official” story-line. This is perhaps both the greatest strength and the greatest weakness of the book. On the positive side, the book highlights the myriad of pressures brought to bear on the FASB. Yet, Riper’s lack of distance and lack of theoretical reflection on the process of standard setting is sure to leave some readers dissatisfied. For example, Van Riper’s matter-of-fact descriptions of the emergence of standard-setting issues doesn’t capture the complexities and richness of the process that Joni Young (1994) highlights in her work on the FASB standard-setting process. For Young, it is necessary to examine how accounting issues emerge, how they are constructed as “problems” and how “logics of appropriateness” influence FASB outputs if we wish to understand the process of standard-setting. Thus, for readers interested in such processes, Van Riper’s account is tantalizing but unsatisfactory.
This leads us to a final question: who are the intended users of this book? Is it the accounting student? Is it the accounting historian? Is it the practitioner? Perhaps it is an appeal to all of the FASB’s nay-sayers. It may be true — you cannot try to please everybody!
