Comments by the American Accounting Association's Financial Accounting Standards Committee on the FASB's 'Conceptual Framework for Financial Reporting (Hereafter CF)', Call for Preliminary Views, July 6, 2006

Posted: 7 Dec 2006 Last revised: 11 Jun 2013

See all articles by George J. Benston

George J. Benston

Emory University - Department of Accounting

Douglas R. Carmichael

City University of New York (CUNY) - Stan Ross Department of Accountancy

Joel S. Demski

University of Florida - Fisher School of Accounting

Karim Jamal

University of Alberta - Department of Accounting, Operations & Information Systems

Bala G. Dharan

Harvard Law School; Berkeley Research Group LLC; Rice University

Bob Laux

Microsoft Corporation

Shivaram Rajgopal

Columbia Business School

George Vrana

Ernst & Young LLP

Date Written: November 29, 2006

Abstract

The American Accounting Association's Financial Accounting Standards Committee is pleased to have an opportunity to express its views on the FASB's Call for Preliminary Views on its Conceptual Framework. We applaud the decision of the FASB to develop a Conceptual Framework and seek comments on its preliminary views and hope the financial reporting community will participate enthusiastically in this important activity.

While we understand the importance of a Conceptual Framework, especially for accounting standard setting, we have deep reservations about the current document. In our response we explain why we think that the Preliminary Conceptual Framework is unlikely to be helpful in setting conceptually sound accounting standards. In particular, as you will see, we have reservations about the following key points: 1. We believe the Preliminary Conceptual framework is too focused on an investment role of accounting, and neglects the more important stewardship role of accounting. 2. The reliance on fair values that are not grounded on actual relevant market transactions (such as mark to model numbers) are not trustworthy. We believe that provision of soft accounting numbers will be harmful to the relevance and usefulness of accounting numbers. 3. We agree with the FASB's desire for neutral accounting numbers. However, given management's upward bias in reporting, we feel that conservative standards are required to produce neutral accounting numbers, and 4. We believe the FASB's standards should not be determined based only on a conceptual framework. Concepts such as relevance are too broad to be useful in determining a specific standard. A more rigorous field-performance-testing model is needed before conducting real world experiments with new accounting standards. We recommend allowing companies more flexibility in their reporting choices to allow market forces a greater role in setting accounting standards.

In closing, despite our reservations about the Conceptual Framework, we applaud the FASB's desire to seek views on its preliminary effort and hope to participate again as this important activity progresses further.

JEL Classification: M41, M44

Suggested Citation

Benston, George J. and Carmichael, Douglas R. and Demski, Joel S. and Jamal, Karim and Dharan, Bala G. and Laux, Bob and Rajgopal, Shivaram and Vrana, George, Comments by the American Accounting Association's Financial Accounting Standards Committee on the FASB's 'Conceptual Framework for Financial Reporting (Hereafter CF)', Call for Preliminary Views, July 6, 2006 (November 29, 2006). Available at SSRN: https://ssrn.com/abstract=948530 or http://dx.doi.org/10.2139/ssrn.948530

George J. Benston

Emory University - Department of Accounting ( email )

Goizueta Business School
1300 Clifton Road
Atlanta, GA 30322
United States
404-727-7831 (Phone)
404-727-5238 (Fax)

Douglas R. Carmichael

City University of New York (CUNY) - Stan Ross Department of Accountancy ( email )

One Bernard Baruch Way, Box B12-225
New York, NY 10010
United States

Joel S. Demski

University of Florida - Fisher School of Accounting ( email )

Warrington College of Business
PO Box 117166
Gainesville, FL 32611-7166
United States
352-392-7597 (Phone)
352-378-1079 (Fax)

Karim Jamal (Contact Author)

University of Alberta - Department of Accounting, Operations & Information Systems ( email )

Edmonton, Alberta T6G 2R6
Canada
780-492-5829 (Phone)
780-492-3325 (Fax)

Bala G. Dharan

Harvard Law School ( email )

1575 Massachusetts
Hauser 406
Cambridge, MA 02138
United States

Berkeley Research Group LLC ( email )

Boston, MA
United States

Rice University ( email )

6100 South Main Street
Houston, TX 77005
United States

Bob Laux

Microsoft Corporation ( email )

One Microsoft Way
Redmond, WA 98052
United States

Shivaram Rajgopal

Columbia Business School ( email )

3022 Broadway
New York, NY 10027
United States

George Vrana

Ernst & Young LLP ( email )

One MOre London Place
1225 Connecticut Ave NW # 700
New York, NY SE1 2AF
United States

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