FAS 5 (and Francine) Featured In BNA

A surprise email and long phone interview a week ago Friday has resulted in a lengthy quote on FAS 5 in the latest version of the BNA Accounting Policy and Practice Report

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My quote shares the paragraph with comments from Lynn Turner.  And we strongly agree:  Better disclosure is better for shareholders and that should be what matters.  

Here’s the excerpt.

FASB Faces Tough Decisions On Proposed Contingencies Disclosures
732 (Vol. 4, No. 17)

…Hiding the Problems. The FASB’s ITAC member Lynn Turner said in an privately distributed email that some companies are not currently complying with the existing standard on disclosures, raising the question of whether the standard is being enforced. Turner also observed that there is an outright ideological difference on what management of companies believe they should have to disclose to the owners of the business. 

Arguing against compromising for the sake of satisfying company management, Turner noted that when the FASB has chosen to give companies what they asked for, and scaled back investor-desired changes— on such issues as off-balance-sheet special-purpose- entities, derivatives disclosures, stock option expensing, and leasing— such decisions have come back to haunt them. ‘‘It always seemed to come back and kick them on the backside when those standards had significant shortcomings or outright failures as a result of the compromises made,’’ he said. 

Indeed, investors argued vigorously for full transparency and have said that they hope that the brouhaha over the issue does not result in the FASB watering down the proposal. Groups such as the AFL-CIO say ‘‘close all existing loopholes’’ and further strengthen the exposure draft. ‘‘We are concerned that the exposure draft would permit companies in some instances to avoid disclosing the risks of contingent losses if the likelihood of their occurring is ‘remote’,’’ the group’s letter said. It further stated that this approach to disclosure will ‘‘result in more unpleasant surprises for investors as companies continue to underestimate the likelihood of financial risks.’’ The AFL-CIO pointed to the collapse of Bear Stearns, as well as the potential taxpayer-funded bailout of the Federal National Mortgage Association and the Federal Home Loan Mortgage Corp. as ‘‘all prime examples of the failure of companies to disclose financial risks in a timely manner because they regarded them as remote.’’ 

Other investors said that to state that current FAS 5 disclosure rules fall far short of meeting the needs of investors is an understatement. Francine McKenna said on her online blog, ‘‘re: The Auditors,’’ that existing disclosures under FAS 5 ‘‘downright hide, obfuscate, and thumb their noses at the need for investors to know what’s going to happen to their investment.’’ McKenna, who is also president of McKenna Partners LLC, told BNA Aug. 15 that she was surprised that attorneys are not seeing that the proposal includes an exemption which ‘‘is a big giant hole that you can run a truck through.  All they’d have to do is say, ‘This would be disad-  vantageous to pending litigation so we can’t disclose it.’ That’s a nice big hole that they could use to not change anything.’’ 
4 replies
  1. Independent Accountant
    Independent Accountant says:

    I agree some companies are not complying with the rules. So? how many divisions has the Pope? What will the SEC and PCAOB do about the Big 87654 firms which let this go on? “Storm the Bastille”, or at least repeal the 1995 Litigation Reform Act. Reverse the Stoneridge decision by legislation. FDR said, “We will tax and tax and spend and spend and elect and elect”. I say, the DOJ “Should indict and indict”, CPAs. That’s my reform program. Oh, yes, and repeal that part of SOX which created the PCAOB.

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  1. […] also repeated in that piece a comment I gave to BNA back in 2008: “Existing disclosures under FAS 5 downright hide, obfuscate, and thumb their […]

  2. […] to information about this BNA report. Link to my story and more on FAS […]

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