Question

The FASB’s board typically includes representation from the preparer, academic, investor, and auditor communities. That is, board members typically come from a mix of these backgrounds. What perspectives might each of these parties bring to the standard-setting process?

Preparer:

Academic:

Investor:

Auditor:

Answer 1

Ans. Perspectives brought by each of these parties to the standard-setting process are:

(i) Preparer: They provide valuable feedback to the FASB, which is critical for standard setting. They could be motivated by self-interest and are sensitive to the cost of implementing new accounting standards

(ii) Academic: Both relevance and reliability, the two primary characteristics of decision useful accounting information, are valued equally by board members with financial statement user backgrounds.

(iii) Investor: It appears that users are most likely to inform the FASB about inadequate disclosures in certain reporting areas. Compared to auditors and preparers, the user group shows up much less frequently, although it is consistent with what we know about the lack of user participation in other aspects of the standard-setting process.

(iv) Auditor: Auditors are likely motivated to bring issues to the FASB because they need explicit guidance in dealing with their clients. Their interactions with their clients also make them well informed about the existence and pervasiveness of diverse practices.