The JAE Conference closed with a contentious discussion of Kothari, Ramanna and Skinner’s paper “What Should GAAP Look Like?”  I have a lot to say about the substance of this and other papers, but that will have to wait for later posts.  (I will probably be posting about the conference for much of the coming week).  Top priority today is to address what the discussion means for FASRI’s role in fostering communication between standard setters and academics, and in what I now realize is an equally important and challenging goal: fostering communication among academics with differing perspectives.  There is clearly some tension between those who rely on a contracting perspective to advocate for conservatism and against fair value, and those who advocate for the FASB’s stated goals of neutrality and for more use of fair value than the contracting school thinks appropriate.

Midway through the Q&A, Ross Watts made an impassioned plea for less name-calling.  In particular, he was clearly upset about yet another instance of someone referring to the positions of contracting school as ‘religious’.  While the reference was clearly intended for humor, I understand Ross’s view.  I have heard many who side with the FASB on neutrality and fair value use the terms ‘religion,’ ‘religious wars,’ and demagoguery.   By the same token, I know that many who do not agree with FASB’s positions on these matters suggest that those who do are beholden to the FASB, have ‘drunk the Kool-Aid’ and the like.

I want to state unequivocally that FASRI has no interest in fostering partisanship, acrimony or name-calling.   Academics call upon a wide variety of methods and theories to form their views on ‘What GAAP should look like.” As long as we keep our discussions grounded in data and theory, I am confident we can agree to disagree, and maintain mutual respect.  On occasion, people might even modify their views.  However, I also understand that many academics who are not enamored of FASB’s actions might look upon FASRI’s usual audience with some suspicion, and assume that our purpose is to convert academics to pro-FASB views, and shut out opposition.  This suspicion leads directly to question in the title of this post, which was more a subtext to the Q&A than an explicit point of discussion, but a central issue for FASRI:

Is there any point in participating in FASRI if you don’t agree with the Conceptual Framework?

I raise the question because, before Ross spoke up, Mary Barth pointed out that the FASB and IASB are about to release the first two chapters of the new Conceptual Framework laying out the objectives of financial reporting and the qualitative characteristics of financial information. She noted that the old CF served as a constitution for decades, and the new one will govern standard setting for decades to come.

Given that the objective of financial reporting stated by KRS is not the one stated in the CF, what are standard setters to make of the paper? More generally, can research be helpful (and research with FASRI in particular) if you don’t agree with the Conceptual Framework.  I think the answer is a definite ‘yes.’ While the CF may be like a constitution, stated goals of neutrality seem to allow at least as much room for debate on implementation as bold statements regarding freedom of the press and the rights of the people to bear arms.  Positive evidence on the effects of conservatism and fair value would be quite likely to influence academics and standard setters, regardless of the CF.  Of course, we still face the challenge of standard setters and academics speaking very different languages; but this just means there is an additional stage of translation.

If you are interested in accounting standards, FASRI doesn’t care what positions you do and don’t hold.  As long as you are willing to ground your discussions in evidence and theory, and engage in polite (if spirited) discourse, JOIN US!

p.s. I’ll be posting shortly on next week’s roundtable (William Bratton, 11am ET Wed, Oct 14th), which is directly related to another key issue discussed today:  the role of the conceptual framework in the larger regulatory environment.  If you have never attended, that session should be a great introduction.  Or, join us this week for revenue recognition.