The Politics of Accounting.

• Author: Hinchman, Grace
• Position: Brief Article

No longer can the accounting profession rely on the Financial Accounting Standards Board and the Securities and Exchange Commission to modify U.S. accounting principles. Now, Capitol Hill wants to weigh in because, in large part, the high-technology industry has successfully used its newfound political clout to spur Congressional support for the New Economy business model.

Over the last couple of years, New Economy companies have increasingly been at odds with the detailed accounting requirements of today's financial reports. Some argue that New Economy businesses can't or won't adapt to traditional accounting standards, while others say that current financial statements are backwards -- little more than holdovers from the Industrial Age. Generally, high-tech firms believe that traditional accounting rules do not properly recognize the true worth of high-technology intangible assets such as intellectual property, research and development costs, innovative processes and a highly skilled workforce.

A good example of the tensions between FASB and New Economy businesses is the FASB exposure draft on business combinations. FASB has tentatively proposed to eliminate pooling and require a 20-year amortization period for goodwill. Since high-tech companies have been unsuccessful so far in convincing FASB or the SEC to preserve pooling or allow for expensing of goodwill, they have taken their "constituent concerns" to Capitol Hill.

High-tech companies formed a coalition and retained several lobbyists to help develop a political strategy to defeat FASB's exposure draft. Beginning in the summer of 1999, they unleashed a coordinated effort on Capitol Hill. Activities included bus tours of Tysons Corner, Va,, technology companies for Democratic Senators; letter-writing campaigns urging Congress to stop the FASB; Congressional hearings in which FASB Chairman Ed Jenkins was called to testify; Congressional staff trips to Silicon Valley to meet with high-tech executives; and strategically timed meetings with SEC Chairman Arthur Levitt and organizing fundraisers for members of key Congressional committees.

Pressure Hasn't Eased

It's no great surprise that these efforts have been successful. In July 1999, FASB decided to postpone indefinitely its consideration of the accounting treatment of purchased in-process research and development (IPR&D) costs -- a key high-tech issue. Chairman Jenkins explained that FASB had concluded...