FAF proposes changes to FASB structure

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19 Dec 2007

The Trustees of the US Financial Accounting Foundation (FAF), under which the Financial Accounting Standards Board (FASB) and Governmental Accounting Standards Board (GASB) operate, have published for comment proposals for significant changes to the FAF-FASB-GASB structure.

The proposals are designed to make FASB's decision-making more efficient and to strengthen the oversight role of the FAF. Click to download the FAF Proposed Changes to Oversight, Structure, and Operations of the FAF, FASB, and GASB (PDF 83k). Comment deadline is 10 February 2008. Among the proposed changes are the following:

Summary of Main Proposals by the FAF Trustees:

Financial Accounting Standards Board (FASB):

  • Reduce the size of the FASB to five members, from seven currently.
  • Retain the current simple majority FASB voting requirement.
  • Require that FASB have at least one member from each of four backgrounds: investing, auditing, preparing financial statements, and accounting education. The fifth member could be from any background. Currently there is no required mix.
  • Give the FASB chair the authority to add issues to FASB's agenda. Currently the full Board must decide. The FAF would have an oversight role in agenda setting.
Financial Accounting Foundation (FAF):
  • Strengthen the governance and oversight activities of the FAF trustees as to the efficiency and effectiveness of the standard-setting process. Trustees propose taking a more active oversight role in such areas as due process, agenda setting, solicitation of public comment, consideration of comments, and the post-isuance evaluation of the effectiveness and efficiency of standards adopted by FASB.
  • Give the power to choose FAF trustees to the trustees themselves, replacing the current system by which eight non-government trustees are selected by six specified organisations subject only to rejection by the trustees on grounds a nominee is 'not suitable'.
  • Change FAF trustees' maximum terms of service from two three-year terms to one five-year term.
  • Change the number of FAF trustees from 16 currently to a range between 14 and 18.
  • Require that the next chairman of the FAF devote between one-third and one-half time to the job.
Governmental Accounting Standards Board (GASB):
  • Retain the current size, term length, and composition of the GASB.
  • Secure a stable mandatory funding source for the GASB.
  • Give the GASB chair the authority to set GASB's technical agenda. Currently the full Board must decide. The FAF would have an oversight role in agenda setting.

With regard to the future role of FASB and IFRSs, the FAF proposal notes:

Recent commitments by many countries to use International Financial Reporting Standards (IFRSs) have opened a broad-ranging debate on issues related to accounting standards convergence and globalization. At its core, this debate must include a realistic assessment of how IFRS will work in actual application across the world and what contributions can be made by the FAF and FASB to the quality and consistency of those standards. The outcome of this debate will affect the future role, structure, and influence of the FAF and FASB on the global standard-setting process. However, regardless of the outcome, the FASB likely will continue to have a meaningful role in how international standards are set, and it may have continuing responsibility for setting standards for private enterprises and not-for-profit organizations in the United States.

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