Shyam Sunder
ABSTRAK: Paradoxical as it sounds in the current environment dominated by Enron news, the solution to the accounting problems lies in less, not more, regulation.
Under the present arrangements, privately-financed Financial Accounting Standards Board writes accounting rules, overseen by the Securities and Exchange Commission, and the Congress. All publicly held firms in U.S. must certify that they conform to this single set of rules.
This monopoly structure for setting U.S. accounting rules has several undesirable consequences.
First, when the FASB proposes new rules to deal with a perceived abuse in the industry, it is subjected to a great deal of pressure not only from segments of the industry but also from the members of the Congress and Administration. Accounting for restructuring of troubled bank loans, cost of exploration in the oil and gas industry, financial derivatives, employee stock options and mergers and acquisitions are among a long list of examples when FASB’ s attempts to reform accounting rules were frustrated by the industry with political support from Washington.
Under the present arrangements, privately-financed Financial Accounting Standards Board writes accounting rules, overseen by the Securities and Exchange Commission, and the Congress. All publicly held firms in U.S. must certify that they conform to this single set of rules.
This monopoly structure for setting U.S. accounting rules has several undesirable consequences.
First, when the FASB proposes new rules to deal with a perceived abuse in the industry, it is subjected to a great deal of pressure not only from segments of the industry but also from the members of the Congress and Administration. Accounting for restructuring of troubled bank loans, cost of exploration in the oil and gas industry, financial derivatives, employee stock options and mergers and acquisitions are among a long list of examples when FASB’ s attempts to reform accounting rules were frustrated by the industry with political support from Washington.
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