FASB Chairman Herz speaks to National Press Club

28 Jun 2009

US FASB Chairman Robert H Herz spoke before the National Press Club in Washington on 26 June 2009. His presentation was titled History Doesn't Repeat Itself, People Repeat History – Front-Line Thoughts and Observations on Creating a Sounder Financial System.

Among the points he made:

Accounting and the financial crisis. "One very welcome development arising from the financial crisis is that a much broader constituency is calling for greater transparency as a necessary ingredient for recovery and the rebuilding of investor and public confidence. Included in this has been the need to improve and strengthen certain accounting and reporting standards. While accounting did not cause the crisis and accounting will not end it, it did reveal a number of areas requiring improvement in standards and overall transparency."
Politicisation of accounting standards setting. "Unfortunately, there have been certain major companies – including ones that subsequently failed and had to be rescued by the government – and industry trade groups that have sought political intervention into accounting standard setting. While that is their right, and while we certainly welcome active dialogue with lawmakers, politicisation of accounting standard setting by special interests risks undermining public confidence in the integrity of financial reporting. The investing public expects and deserves unbiased and transparent financial information that is not skewed to favor particular transactions, companies or industries."
Transparency. "Transparency is not just a buzz word or a cliché. It is a fundamental and absolutely essential attribute of sound financial markets. Relevant, trustworthy, and timely information is the oxygen of financial markets. Depriving markets of such information – or polluting the information – can have very adverse consequences."
Regulatory reform. "Some of the most difficult accounting and reporting issues emanating from the financial crisis stem, at least in part, from the lack of proper regulation and risk management, unsound lending and securitisation practices, and the absence of proper market infrastructures around the 'dark markets' for structured credit products and derivatives."
Capital markets reporting versus prudential regulatory reporting. "Our focus as accounting standard setters is on the communication of relevant, transparent, and unbiased financial information on corporate performance and financial condition to investors and the capital markets. That information is aimed at facilitating informed investment decisions and is essential to effective allocation of capital across the economy. The transparency provided by external financial reports also contributes to financial stability by reducing the level of uncertainty in the system. On the other hand, the very important focus of bank regulators is on the safety and soundness of individual financial institutions, protection of customer deposits, and on the overall stability of the financial system. Given our different missions and focus, it is not surprising that we would sometimes have different perspectives on particular accounting and reporting matters affecting financial institutions."
Global accounting standards. "Recognising the potential benefits that could result from having a single set of high-quality accounting standards across the global capital markets, we have devoted substantial time and effort in recent years to working with the International Accounting Standards Board on jointly improving and converging our respective standards through developing common standards in major areas and eliminating differences between our standards. At the same time, we also strive to take care of business at home by responding on a timely basis to reporting issues in our system. Riding these two horses is not always easy and sometimes requires timely actions in terms of improving US GAAP in an area while also working on longer term global solutions with the IASB in the same area."