Potential Legislation Is Harmful to Investors and Harmful to Private-Sector Standard Setting

Norwalk, CT, October 4, 2000—Financial Accounting Standards Board Chairman Edmund L. Jenkins spoke out vigorously against potential legislation introduced late yesterday (October 3) by two members of Congress. "The potential legislation must be seen for what it is-legislative interference with the FASB's ability to do its job. The proposed bill would directly hamper the FASB's independence by legislating the timing of the FASB's proposed improvements to the transparency of the accounting and reporting for business combinations. The bill, if passed, would have a serious and negative impact upon consumers of financial information."

Representatives Christopher Cox (R-CA) and Calvin Dooley (D-CA) have introduced a bill in the House of Representatives that would postpone proposed improvements to the transparency of business combinations. "To delay the completion of the project on business combinations is clearly a political intrusion into the FASB's mission. Delay would unnecessarily deprive investors of important financial information," Mr. Jenkins said. "Although the bill does not attempt to directly legislate an accounting solution, the delay called for will compromise the FASB's independence and inhibit the FASB's ability to seek a solution that will give investors a clear picture of what happens when businesses combine.

"Currently, investors have no idea of the real cost of a business combination accounted for by the pooling method. In a pooling, the two businesses merely add together the book value of their assets, without showing what price one company paid to acquire the other. Investors cannot determine the purchase price, and it is impossible to track their investment over time," Mr. Jenkins said.

"We have heard strong support for the FASB's independence from many of Representative Cox's and Representative Dooley's colleagues in both the House and the Senate and denial of any interest in having Congress insinuate itself into the activities of a private-sector organization that has independently established the nation's accounting standards for almost 30 years. Corporate America, investors, the accounting profession, and many Members of Congress understand the value of having accounting standards established in the private sector by an independent body. This potential legislation clearly interferes with the FASB's ability to continue to make necessary improvements to the transparency of financial information. Whether legislation takes the form of a moratorium on the timing of a proposed improvement, or a roll-back of an existing standard, it interferes with the ability of the FASB to perform its mission by compromising the independence of the FASB and the quality of information that investors receive," Mr. Jenkins said.

"The issues before the FASB are always controversial, with many people arguing all sides. The bottom line is that FASB standards are established in an open and independent manner without undue influence from any particular special interest group. Those standards have provided the backbone for our nation's robust economy and vibrant capital markets because of the transparent and reliable nature of the information that results from applying them," Mr. Jenkins said.

"Further, we have received a great deal of very good input on our proposed improvements to the accounting and reporting for business combinations and are continuing to redeliberate the issues contained in the proposal based on that input. We have not set any deadline for completing the project and are certainly not rushing to any final conclusions.

"In our most recent quarterly review of all FASB projects, we determined that we will not be able to complete the project on business combinations by the end of the year 2000; rather, completion is now estimated to occur no earlier than late in the first quarter of 2001. That estimate could be extended further depending upon the progress of our redeliberations.

"The FASB's open due process and independent and objective decision making will be carefully and fully carried out with respect to the project on business combinations. To do otherwise would jeopardize the very foundation upon which private-sector accounting standard setting was created," Mr. Jenkins said. "We believe the potential legislation proposed today is an unwarranted and unwise intrusion in the FASB's ability to continue to establish high-quality accounting standards in the private sector on an independent basis."