Downsizing FASB

The standards setter proposes shrinking the size of its board, raising a new accounting question: Is five worth more than seven?

In theory, a smaller board would give Young or his successor a stronger voice, but Young disputes that notion. “The investor representation is tokenism today with one out of seven, and it is still tokenism with one out of five,” he said. Indeed, in addition to increasing investor representation, Young argues that the chairman also ought to be an investor.

“When I was a member of FASB, it was my view that there were seven board members and at least one of them at any given time was very weak,” says Schipper. “That was a reason to have seven instead of five, frankly. Then you had six other people to carry the burden instead of four.”

Former FASB chairman Denny Beresford said he had proposed shrinking FASB in the 1990s in response to trustee pressure to reduce expenses, but says the trustees at the time balked at the idea. “The trustees thought they should have as many voices involved in the process as possible,” he told

Beresford, who stepped down from FASB in 1997, says FASB now has a different funding structure and the new proposal is “about efficiency and effectiveness.” A smaller board, he says, “makes it easier to make decisions.”

Beresford, currently an accounting professor at the University of Georgia, says he does not think a smaller board would harm the quality of standard setting. “I think five is a reasonable number,” he noted, saying that the number of board members is not as significant as who the board members are. He also said it was difficult to recruit investors “who are willing and able” to join FASB because of its “narrow focus” on technical accounting issues and the financial commitment required.”Investment bankers get paid a lot of money,” he told, “For a successful financial analyst, [joining FASB] would be a cut in pay.”

Beresford also pointed out that the move to give the FASB chairman more power to set the board’s agenda is a departure from current practice. Today, projects are added to, or in the rare case dropped from, the agenda via a full board vote. If the new proposal is accepted in its current form, the chairman would be given the “ultimate say on projects,” said Beresford. But he expects that Herz, or any other chairman, will consult with the rest of the board before making a final decision.

Schipper, who is also formerly a member of the Financial Accounting Standards Advisory Council, which is supposed to advise FASB on setting its agenda, questions whether the FAF feels the FASAC is not doing its job. “I wonder if this is why they see the need to concentrate agenda setting power?”

Schipper also wondered whether the chairman’s new power to set the agenda would include the ability to remove items. “That’s an interesting idea,” she said. “Suppose the chairman were on the losing side of a technical vote, would he not be in the position to have a supermajority vote and say that, since the item was not going his way, he could remove the item from the agenda?” Schipper said that the FAF should also be asked whether “concentrating this power in a single individual might cause potentially highly qualified board members to consider whether they want to join the board.”

Comments on the proposal to shrink the board and cede more power to the FASB chairman are due by February 10.


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