The announcement on Tuesday that Robert Herz will retire as chairman of the Financial Accounting Standards Board on October 1, two years before his term expires, came as a shock to many accounting executives. After all, they have been busy planning for the major accounting changes that have been streaming from FASB under Herz’s leadership, as well as for the possibility that they will need to adopt international financial reporting standards someday.
At least for the moment, finance teams plan to continue as if nothing has changed, despite the increased uncertainty over when changes to U.S. generally accepted accounting principles will hit, and whether Herz’s resignation after an eight-year tenure will further delay the adoption of IFRS. “We made a decision to continue to proceed on conversion, or at least identify critical issues on the path to IFRS, and I don’t see [the resignation] as a deterrent, at least at this point,” says Arnie Hanish, chief accounting officer of Eli Lilly and a frequent commenter on FASB standards. “I’m not going to modify the plans we have in place unless there’s an indication that the overall time line is in jeopardy.”
The transition at FASB could delay the end date of the project for converging U.S. GAAP and IFRS, currently the end of 2011. But Hanish, for one, doesn’t believe that the goal for U.S. publicly traded companies to adopt IFRS by 2015 will change. Meanwhile, he’s optimistic that the appointment of FASB board member Leslie Seidman as Herz’s temporary replacement could be a bonus for public companies. Seidman previously managed her own CPA firm and before that worked at JP Morgan and Arthur Young & Co., now part of Ernst & Young.
“Probably more than others on the board, she brings a preparer’s perspective to the table,” says Hanish. “It’s nice to have her in a position of significant leadership, at least in the interim.” Seidman’s term ends in 2011, and according to a FASB spokesperson, she is eligible to serve until 2013.
Herz’s departure comes when a search is already under way to replace his counterpart at the International Accounting Standards Board, Sir David Tweedie, who will step down next June. Moreover, FASB is seeking comment on no less than nine exposure drafts between now and the end of the year, with five of those carrying September deadlines. The topics include some broadly debated issues, including revenue recognition, lease accounting, accounting for contingent liabilities, and financial instruments.
Given this context, speculation abounds as to why Herz is leaving now. (A FASB spokesperson did not immediately respond to CFO’s request for an interview with Herz or Seidman.) Whatever the reasons for the abrupt departure, however, it’s clear that it will be a major disruption to the board’s work. “Bob’s departure leaves a major void at a critical time,” says Hanish, noting that he thinks Herz “has done a really fine job over the past eight years in leading FASB through a challenging period.”
Complicating FASB’s transition to a new chairman will be the addition of two new board members. In conjunction with Herz’s resignation, FASB announced that the board would return to its previous seven-member size. Two years ago, the Financial Accounting Foundation made a then-controversial decision to reduce the board’s size to five members.
However, as a well-liked leader, Herz may have laid the groundwork for little to change when he moves on from the standard-setter. “Part of his legacy is that FASB is such a vibrant organization and that the other members share Bob’s intellect and vision,” says Mark Ellis, CFO at specialty-gift retailer Michael C. Fina, who serves on FASB’s small-business advisory committee. “I see things continuing to progress as they have.”
While no one embraces uncertainty, accounting executives say there could be a few silver linings in the changes at FASB. Ken Kelly, corporate controller at spice maker McCormick & Co. and a frequent FASB commenter, says the crimp in current time lines that the addition of three new board members is likely to create “could be good.” Kelly has been concerned with the effect of the current pace of change on the quality of input and decisions at the standard-setter. “The worst scenario is they rush out accounting standards and then endlessly amend them after they find flaws in them,” he says. Now, the changes at FASB “may give us more time to make sure we don’t have standards that are going to be significantly revised in the near future.”
Meanwhile, although Kelly might like to slow down the pace at which he and his team must analyze and comment on existing accounting proposals, the news of Herz’s departure “doesn’t change anything that we’re doing day to day,” he says.