CPAs Must Stand Firm in Standard-Setting Process.

• Author: IQBAL, M. ZAFAR

Accounting professionals want to serve the public interest. It is therefore imperative that the profession maintains its self-regulation. We should be alarmed when even a slight erosion of self-regulation results from restrictions imposed from outside the CPA profession. Self-regulation lies at the very core of our capacity to retain public trust and confidence.

In recent years, frequent political intervention has shown little regard for the long-term damage it can do to the profession's prerogative for self-regulation and to the integrity of its due process for setting accounting standards and policies.

Accounting is a service activity. It can retain its relevancy and ability to provide value-added services to clients only if it remains a dynamic profession. It must adapt to the constantly changing environment in which it operates. However, any change has to be credible and orderly, respecting the due process of formulating accounting standards. Without retaining due process, standard-setting processes will become arbitrary and will be subjected to whatever strong influences happen to be present at the moment, no matter how harmful the long-term societal and economic consequences.

FASB'S DUE PROCESS FOR STANDARD-SETTING

Since its inception in 1934, the SEC has always deferred to the accounting profession in setting accounting and reporting standards-with one exception. In 1978, yielding to aggressive lobbying by the oil industry, the SEC rejected Statement of Financial Accounting Standard No. 19, "Accounting and Reporting by Oil and Gas Producing Companies." This hurt the perception of FASB's role in the eyes of many who felt FASB had caved to the SEC, since it had to issue Statement No. 25 to amend No. 19.

The most authoritative source of accounting principles is FASB's statements and interpretations. To ensure that concerns and opinions of all stakeholders are considered, FASB's due process gives all interested parties ample opportunities to express their viewpoints before a standard is issued. The process consists of nine steps:

1. FASB selects project for agenda;

2. Task force to define issues appointed;

3. FASB technical staff researches issue;

4. Discussion memorandum drafted and released to the public;

5. Public hearings held;

6. Comments on discussion memorandum evaluated;

7. Exposure draft of the proposed standard released;

8. Exposure draft comments evaluated and incorporated into document;

9. Statement of Financial Accounting Standard...