From the Chairman's Desk:
By Russell G. Golden, FASB Chairman
Academics Bring Unique Perspective to Standard Setting
Not long ago, the Financial Accounting Standards Board (FASB) staff was preparing a proposal on the conceptual framework on presentation for the Board to review, approve, and issue to stakeholders. One important step needed to complete that process was conducting an external review of the proposal by academics and other stakeholders.
Academics are known for the high standards and rigorous review process they bring to their work.
The staff shared the proposal with the Academic Resource Group (ARG). Academics are known for the high standards and rigorous review process they bring to their work. The FASB staff knew that, in the hands of academics, all the I’s would be dotted, and the T’s would be crossed. But what they received back was much more helpful than a few simple line edits…
ARG members helped FASB staff revise wording in the proposal to make things more understandable for the Board and our stakeholders.
Our relationship with academics is multifaceted. As professors, academics (along with their students) are consumers of accounting standards and financial reports. As researchers, academics probe deeply into the accounting ecosystem, helping us research potential problems in current financial reporting.
Like all stakeholders, members of the academic community bring us valuable feedback on Discussion Papers, Exposure Drafts, and other proposals issued at various stages of a project. At public Board meetings, the FASB staff will reference academic research—which often provides us with a deeper understanding of the problem and the possible solutions.
Throughout the standard-setting process, academics provide input through their participation in our other advisory groups. In addition to the ARG, members with significant academic experience serve on the Financial Accounting Standards Advisory Council (FASAC), the Not-For-Profit Advisory Committee (NAC), the Private Company Council (PCC), and the Small Business Advisory Council ( SBAC).
Other valuable sources of input are through the Financial Reporting Policy Committee (FRPC) of the American Accounting Association (AAA), and the Financial Reporting Issues Conference (FRIC)—which is an annual gathering of leading academics.
Academics have also helped us decide what issues to tackle in the first place.
Academics have also helped us decide what issues to tackle in the first place. During our 2017 agenda consultation project, the Board had to determine what projects to add—or not add—to our agenda. Before we made those decisions, though, we needed to assess the significance and pervasiveness of perceived problems in GAAP. We also had to identify potential technically feasible solutions.
Our decision to add a project on financial performance reporting was based, in part, on academic research. In this case, the FASB staff used published research to identify why disaggregating performance information and defining operating income could improve financial reporting. Equipped with this information, the Board decided we could (and should) add a project to improve this area of financial reporting.
Academic research also helps us understand the impact of a standard after it has been issued.
Academic research also helps us understand the impact of a standard after it has been issued. Both the FASB and the Financial Accounting Foundation—through its Post-Implementation Review (PIR) process—have used comprehensive, academic literary reviews to help us understand how the marketplace reacted to a change in our standards and whether the objectives of the change were met.
To ensure the academic community remains invested in our work, FASB members and staff are active on the university speaking circuit. Led by FASB Member Christine Botosan, a former professor of accounting at the University of Utah, FASB members and staff speak regularly at AAA meetings and various universities across the country. Conversations often center around the Conceptual Framework’s importance, development, and path to completion.
Recently, we also took steps to further strengthen our relationship with the academic community by hiring our first Post-Doctoral Fellow.
Recently, we also took steps to further strengthen our relationship with the academic community by hiring our first Post-Doctoral Fellow. The Post-Doc program brings additional academic research and skills to the FASB’s accounting standard-setting process. We are excited to announce that Kurt Gee, upon graduating from Stanford University, will join us in July. Kurt will work with us fulltime for a year before joining the faculty at the Smeal College of Business at the Pennsylvania State University. With his help, we will continue to strengthen the relationship between academic research and financial reporting standard setting.
We are extremely grateful for the unique skills and insights provided to us by the academic community. Academia is a critical, valued segment of the overall universe of FASB stakeholders, and one that we hope will continue to help us make our standards better.
As always, academic or not, we want to hear from you. Thank you for your continued support of our projects and process.