Once unknown, Financial Accounting Standards Board is in the limelight

April 25, 1993|By John M. Moran | John M. Moran,The Hartford Courant

NORWALK, Conn. -- Never had the accountants seen such attention.

Reporters jammed their hearing room. Photographers angled for shots. A CNN camera crew, moving in for a close-up, accidentally bonked one board member on the head.

It was a bit unsettling for the Financial Accounting Standards Board, which usually deliberates in quiet anonymity at its southwest Connecticut headquarters. "We've had more press interest in the last several months than we've had for years before that," board Chairman Dennis R. Beresford said.

The reason: millions and billions of dollars.

FASB (pronounced Fasbee), funded by contributions from the financial community and the accounting profession, makes the rules by which corporate America monitors its money. And that can mean big winners and losers when it alters "generally accepted accounting principles."

A few examples illustrate just how much is at stake:

* A new accounting rule wiped out the Fortune 500's entire $70 billion profit last year -- and is reverberating in some of the quarterly earnings reports being released now. The rule, known as FAS 106, makes companies account for the cost of health benefits that employees will get after retirement.

For General Motors Corp., that meant a $20 billion charge against earnings and the largest one-year loss in corporate history. For Westinghouse Electric Corp., one of Maryland's largest employers, the rule stripped $742 million from 1992 earnings.

The new accounting standard also affects workers -- some companies cut back on retiree benefits when they realized how much it was costing them.

* Hundreds of executives are lined up against a FASB proposal aimed at charging earnings for the cost of stock options. Such a charge, they say, would discourage the use of stock options and stifle an important measure for attracting talent and creating incentives.

* Another proposal would make companies record the current market value of their securities, not the purchase price, in financial statements. But insurers and banks, which tend to hold more securities than most other businesses, charge that market changes could make their asset portfolios volatile.

In setting such standards, FASB is pursuing a simple mission: tmake rules that fairly reflect a company's financial strength. Achieving that goal, however, can be difficult.

"You can't satisfy everybody," said Robert Hoskin, associate professor of accounting at the University of Connecticut. "Because the world has become so complex and we have lots of complex financial transactions, the board has found itself trying to address some really difficult issues."

Discussing stock options

A gray, oval conference room on the fifth floor of a Norwalk office building is the scene of the board's weekly meetings. The seven full-time board members -- paid $305,000 a year, except for the chairman, who gets $375,000 -- sit around a square conference table, flanked by raised benches for observers.

When the board convened at a 9:30 a.m. one recent Wednesday, members quickly moved into a discussion of stock options.

Such options often are granted to executives at the stock'current value -- the right, say, to buy 100 shares at $10 apiece at any time during the next 10 years. That way, executives have a clear incentive to increase the stock price -- the more it rises, the more money they can make when exercising their options. Options can also serve as compensation when a company, such a start-up venture, is short on cash for salary or bonuses.

FASB and its 40-member professional staff, in a quest for consistency in financial reporting, has been leaning toward listing stock options as a corporate expense, and there

fore a charge against earnings. Stock options have value, after all. Wouldn't listing them with such other expenses as salary and bonus be more accurate?

No, says a legion of corporate executives protesting the proposal. They argue it would put American companies at a competitive disadvantage, make it harder for start-up companies attract talent and discourage firms from granting stock options to rank-and-file employees.

"Obviously, this is one of those ideas that attempt to kill the goose that laid the golden egg in this country," John C. Neff, chairman of Pinnacle Care Corp. in Nashville, wrote to the board.

But many critics of executive compensation packages see a hidden motive behind such objections. They believe executives fear that their lucrative stock option packages would be cut back if the new accounting rule were adopted.

Amid this debate, FASB took up the issue. In its discussion, the board clung tightly to technical matters. Phrases such as "measurability concerns," "option-pricing models" and "reporting recognition" punctuated the discussion.

But now and then, a member cut to the heart of the matter.

"These [stock option] awards have value and value is compensation expense," board member Robert J. Swieringa said.

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