Accounting & Auditing | Legislative / Regulatory

Herz, FASB trying to roll with the changes

Herz IFRS marches on, fair value is still fair and transparency is more important than ever.

A conversation with Robert Herz these days is likely to boil down to these few points.

Herz has been a busy man for the past few years. He took over as chair of the Financial Accounting Standards Board shortly before the Sarbanes-Oxley Act was signed into law in 2002. Since then, the FASB has been working to reorganize and simplify generally accepted accounting principles and, more recently, leading the movement toward a single set of global standards known as international financial reporting standards that Herz believes is vital in an age of global business.

Now, he's keeping a close eye on possible reforms that may surface under President Obama's administration, all while positioning the FASB to remain relevant in a changing regulatory environment.

With a new president, a financial crisis and further calls for reform, it's as good a time as any to catch up with Herz and get an update on what's happening at his organization and around the world. So what does he have to say?

On fair-value accounting: I love Herz's take on fair value (aka mark-to-market), and the reason I love it, not surprisingly, is because I agree with it whole-heartedly.

"Most investors we've talked to say the issue isn't too much fair value; it's too little," said Herz, before adding a perfectly brilliant analogy: "It's no different than when, as an individual investor, you get your monthly 401(k) statement and you see the values going down, you see your home values going down, and that may prompt you to take some action, like selling some of the securities to maintain your intended retirement funding. That's just a consequence of telling the truth about the current situation."

On the prospect of pending regulation: Herz believes we need further reforms to fix our financial problems, but he also believes transparency needs to be the focus of any reforms. Lawmakers must make sure "the public policy goal that we represent in terms of good accounting standards and transparency for investors ... remains a very high priority in any redesign of the system," he said.

On international financial accounting standards: New SEC Chair Mary Schapiro has distanced herself a bit from the march toward IFRS, telling Congress that she "will not be bound by the existing roadmap." Herz says that's probably the right position for an incoming SEC chair, but he emphasized that the FASB would continue to work with the International Accounting Standards Board to pave the way for one set of global accounting standards.

"It's not clear what the path will be at this point," he said. "We're going to continue moving toward this objective and working hard with the IASB to produce common, better standards."

Herz's conversation is available in its entirety as part of a CPA Spotlight podcast.

You'll get updates on all these initiatives and more at our Maryland Business and Accounting Expo, slated for June 16-17 in Baltimore. Get complete details about the Expo here.


Bill Sheridan