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Economist Addresses FASB Monopoly Over Accounting Rules LOS ANGELES, Aug. 20, 2002 In the latest issue of The Milken Institute Review, one economist argues that the biggest obstacle to effective accounting reform is the monopoly of the Financial Accounting Standards Board over accounting rules. "A core problem with any monopoly standard-setter is that it has no incentive to respond to market forces, let alone to resist political influence," argues Robert E. Litan, director of economic studies at the Brookings Institution, in Fixing Corporate Disclosure After Enron. Litan addresses the FASB's lethargic standard-setting and the issue that the Board is often influenced by special interest groups, noting that "the main purpose of accounting standards for publicly held companies is to protect the investors, not the accountants or the firms' managers ... In short, the issue is not how to keep politics out of rule-making, but how to prevent the process from favoring corporate interests over those of investors." Litan recommends a competition-based approach to accounting standards. Practical approaches to this method include having companies choose one set of standards (such as GAAP or IAS), or narrowing the current reconcilation requirement of foreign companies, where they can instead reconcile only significant items, like stock options. For more on Litan's article, Fixing Corporate Disclosure After Enron, see the latest edition of The Milken Institute Review, available on the company's Web site.
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