A businessman's view of the standard-setting process.

• Author: Chandler, Colby H.
• Position: Accounting standards

A businessman's view of the standard-setting process Let me start by saying that I do believe in the standard-setting process and I believe in the need for the FASB. And while much of what I offer here may seem highly critical, particularly of the FASB--and it is--I offer it out of concern for Corporate America and with considerable respect for the Board.

Why do I, as a CEO, have such an active interest in standard-setting?

Because financial reporting has an impact on our company beyond how our statements are interpreted by investors. True, financial reporting is the primary way to communicate the financial health and performance of a company, but it also provides the framework for measuring financial results internally and it provides the information for credit evaluation and investment decisions both externally and internally. As a result, businesses are not only the primary preparers of financial reports, but also the primary users, even though the emphasis is always placed on the needs of analysts and outside investors.

It is only natural that CEOs are giving attention to the standard-setting process. We are the ones who ultimately will be held accountable for our companies' fortunes and misfortunes. Therefore, it is critical that we view financial reporting not simply as an important area, but as one in which we should become actively involved.

Indeed, that is why I support the recommendations of the Treadway Commission that ask for an appropriate "tone at the top." The tone set by top management is an important factor contributing to the integrity of the financial reporting process. Our trumpets can give no uncertain sound. No matter how many impressive edicts or written procedures a company promulgates, if the tone set by management is lax or unclear, fraudulent financial reporting is more likely to occur.

We need to include everyone at all levels of the company: operating management, attorneys, financial managers, internal auditors, and top-level corporate management. Heightened awareness and sensitivity from all of these individuals are key.

But we also could use some heightened awareness and sensitivity from the FASB. In my opinion, the original reason the SEC believed it appropriate to rely on the private sector for standard-setting remains valid today: we need a standard-setting organization, like the FASB, to be independent of political pressures.

But we also need our standard-setting body to take better advantage of the knowledge of the financial people in the private sector who have the primary responsibility for fairly presenting financials. Yes, the FASB should be independent, but it should not be insensitive to the operational needs of business. That, quite frankly, is what I fear it has become.

At best, it is an ivory tower that offers a nice overview of the business world. But such a lofty perspective often makes it difficult to decipher what is actually happening in the street--Wall Street, Main Street, or otherwise. At worst, it is a quasi-governmental entity promulgating rules, regulations, and mountains of paperwork with little accountability to anyone.

I have no quarrel with the Board's appointed mission. Among the many things its mission statement says is that the FASB is "to establish and improve standards of financial accounting and reporting for the guidance and...