US accounting standards boss hits back at critics over pace of rulemaking

The head of the US accounting standards body has hit back at critics who say the organisation is too slow at making new rules, and rejected proposals to give investors a bigger role.

The Financial Accounting Standards Board came under fire last month from a group of investors who said the rules governing financial statements were failing to keep up with changes across corporate America.

The group — an advisory panel to the Securities and Exchange Commission — expressed frustration that the FASB sometimes took a decade or more to draw up a new reporting standard, and it urged the SEC to step in to shake the body up.

In an interview with the Financial Times, FASB chair Rich Jones defended the organisation’s record and said it was important to listen to many stakeholders.

The standards for financial statements are “designed to provide the best information for capital allocation decisions” by investors, he said, but “at the end of the day, it’s applied by accountants, and it’s evaluated by auditors. It has to work.”

Rich Jones
Rich Jones says a plan to force companies to split out expenses in more details will allow investors to better track the effects of high inflation

Jones, a former chief accountant at Ernst & Young, pointed to forthcoming changes to the accounting treatment of cryptocurrency and disclosure requirements on international taxes to show how the FASB is responding to demands for clearer financial statements.

A new plan to force companies to split out their expenses in more detail would also help investors track the effects of higher inflation, he said.

“Have I been focused on how we can improve the speed with which we tackle certain standards? Absolutely,” he said.

But the organisation also needs to make sure there is consensus before moving ahead. The FASB is responsible for setting out the generally accepted accounting principals used for US companies: financial statements, with an emphasis on “generally accepted”, he said.

Jones said projects that took more than a decade, such as changing accounting for leases and rules on revenue recognition, had to be co-ordinated with international regulators and the FASB sought wide feedback.

“Do you really want to cut any of those steps out?” he said.

The SEC advisory group, whose members include representatives from the hedge fund Trian, the financial adviser Edward Jones and the California pension fund Calpers, demanded the creation of an investor panel to review the FASB’s operations. The SEC is yet to respond to the recommendation.

Capital Group, the $4tn-in-assets fund manager, last year suggested investors should make up more than half the FASB’s trustees, up from one-third now. Auditors and corporate accountants make up the majority.

Jones said investor representation was already “significant” at the organisation.

“We have an open-door policy” for comments and proposals, he said, “and with investors, we’re dragging them through the door all the time.”