The announcement that Robert Herz would retire as chairman of the Financial Accounting Standards Board on October 1, two years before his term expires, came as a shock to many accounting executives. After all, they have been busy planning for the major accounting changes that have been streaming from FASB under Herz's leadership, as well as for the possibility that they will need to adopt international financial reporting standards (IFRS) someday.
At least for the moment, finance teams plan to continue as if nothing has changed, despite the increased uncertainty over when changes to U.S. generally accepted accounting principles (GAAP) will take effect and whether Herz's resignation will further delay the adoption of IFRS.
"We made a decision to proceed on conversion, or at least identify critical issues on the path to IFRS, and I don't see [the resignation] as a deterrent, at least at this point," says Arnie Hanish, corporate controller at Eli Lilly and a frequent commenter on FASB standards. "I'm not going to modify the plans we have in place unless there's an indication that the overall timeline is in jeopardy."
The transition at FASB could delay the completion date for converging U.S. GAAP and IFRS, currently scheduled for the end of 2011. But Hanish, for one, doesn't believe that the goal for U.S. publicly traded companies to adopt IFRS by 2015 will change. Meanwhile, he's optimistic that the appointment of FASB board member Leslie Seidman as Herz's temporary replacement could be a plus for public companies. Seidman previously managed her own CPA firm and before that worked at JP Morgan and Arthur Young, now part of Ernst & Young.
"Probably more than others on the board, she brings a preparer's perspective to the table," says Hanish. "It's nice to have her in a position of significant leadership, at least in the interim." Seidman's term ends in 2011, and, according to a FASB spokesperson, she is eligible to serve until 2013.
Even as Herz departs, the International Accounting Standards Board is already searching for a replacement for his counterpart at that organization, given that Sir David Tweedie will step down next June. Moreover, FASB is seeking comment on no less than nine exposure drafts, many of which address hotly debated issues including revenue recognition, lease accounting, accounting for contingent liabilities, and financial instruments.
Neither FASB nor Herz would comment on the specific reasons for Herz's resignation, but Hanish, for one, applauds Herz's record. "Bob's departure leaves a major void at a critical time," he says, noting that Herz "has done a really fine job over the past eight years in leading FASB through a challenging period."
"Part of [Herz's] legacy is that FASB is [now] such a vibrant organization and that the other members share Bob's intellect and vision," says Mark Ellis, CFO at specialty-gift retailer Michael C. Fina, who serves on FASB's small-business advisory committee. "I see things continuing to progress as they have."
So Many Issues
During his eight-year run as the chairman of the Financial Accounting Standards Board, Robert Herz has been quoted in CFO dozens of times. Some highlights:
• In a 2003 cover story, Herz said that accounting was beset by "thousands and thousands of conventions" that amounted to "pure accounting fantasies" that failed to adequately define income. That created, he argued, "a basic schism in U.S. industry" between a company's management and its investors.
• In 2005, Herz and Sir David Tweedie described the challenges of converging GAAP and international financial reporting standards. Asked about the biggest point of contention, Herz quipped, "I like one brand of Scotch and Tweedie likes another."
• In 2008, Herz resisted efforts to allow smaller, nonpublic companies to use a separate version of the new GAAP format, on the grounds that "users don't want to have to learn two languages." But he did concede that the revised GAAP "may have to be simplified" for private companies.