Interference by the Congress and the SEC is not a new thing.  Accounting for the investment tax credit in APB Opinion No. 2 was overturned by Congress, which by law permitted a different method (subsequently and begrudgingly conceded by the APB in Opinion No. 4).  The FASB opted for successful efforts accounting in FAS 19 only to see it overturned by the SEC in ASR 253.  And recently Congress threatened to intervene unless the FASB provided some relief with respect to fair value accounting.

In addition to these instances, the FASB and its predecessors have faced intense lobbying over a number of accounting issues, including leasing, restructuring of troubled debt, pensions, business combinations, and special purpose entities.  Whenever the FASB deals with an important issue, one that will produce “losers”, one should expect aggrieved parties to express themselves and to resort to the SEC or to Congress for help.

Previous leaders of the FASB, including Armstrong, Kirk, and Wyatt, have acknowledged the presence of political factors and how they prevent standard setters from finding technical solutions to technical problems.  And they yearned for a world in which standard setting would be insulated from politics.  Alas, such a world does not exist.

Leaders of the FASB would be much better off if they just accepted the world as it is instead of bemoaning the one they face.  Then they should embrace the political challenges and take the offense, as staying on defense is almost always a losing proposition.  And they should not wait until the political pressures are too great when little or nothing can be done.

For example, immediately after the collapse of WorldCom, the FASB should have seized the moment.  Investors and creditors were yelling and screaming for justice after the implosions of Enron and WorldCom, so much so that the almost economically comatose White House woke up, the Congress went from almost killing Sarbanes-Oxley to speeding up and ensuring its passage, and even Harvey Pitt found religion.  The FASB should have taken immediate action to require the expensing of stock options.  It also should have taken steps to change the accounting for special purpose entities.  And, in the process, it could have dared anybody to prevent them from mandating more truthful and more transparent accounting.

Last year was another golden opportunity that the FASB let pass.  The board members should have known that politicians were going to step in and force the hand of the FASB.  Bankers have lobbied Washington mercilessly for over a year.  Did the FASB really expect our national politicians to ignore the hands of those who feed them?

While the public was still feeling the sting caused by the excesses and the failures of AIG and Wall Street and the mortgage-based government-sponsored enterprises, the FASB should have written op-ed pieces for leading newspapers and online news agencies.  It should have sought out guest spots on national radio shows.  And it should have presented its case on national television shows—Sixty Minutes, O’Reilly, and Lou Dobbs are some of the programs I would have contacted.  Even a gig on John Stewart or Leno or Letterman could have been effective, if the FASB had a spokesman with a sense of humor.  The board should have taken the case to the American people and informed the world that AIG executives and bankers and managers at Freddie and Fannie were lying in their financial reports and wanted permission to lie some more.  The argument would have resonated with the public.

Let’s quit wishing for a world that doesn’t and won’t ever exist.  That’s a child’s game.  Let’s engage the enemy in the world we have.  The FASB has something to contribute to the investment community, and its work is too important to whine about the tactics of the enemy.  Let’s take the fight to the public.  If the FASB did this, I think it would win.  And we would all be better off.