Obscure Accounting Panel Wields Vast Fiscal Power : Economy: Seven-member board makes bookkeeping rules that lately have staggered huge U.S. companies.
In an oval conference room on the sixth floor of a nondescript office building in this bedroom community of New York City, a group of accountants huddled one recent afternoon to discuss some of the finer points of corporate bookkeeping.
But this was no ordinary gathering of green-eye-shade pencil pushers. In fact, it marked the weekly meeting of one of the most powerful--and controversial--groups in U.S. business.
Corporate America is abuzz over something called the Financial Accounting Standards Board, a once-obscure group of seven veteran accountants empowered by the federal government to tell companies how they must keep their books.
These policy-makers are not elected, nor appointed by politicians. They conduct their work far from major business or media centers. Yet, they wield tremendous clout.
General Motors Corp. and Ford Motor Co., among other major corporations, can attest to that.
GM announced plans Monday to take a $20.8-billion charge against 1992 earnings to account for retiree health care costs as a result of a controversial new FASB rule that requires companies to take account of future employee retirement health care obligations.
The charge will leave GM with a staggering annual loss of more than $23 billion--by far the largest one-year deficit of any publicly owned U.S. corporation. Similarly, Ford said several weeks ago that it will take a $7.7-billion charge to account for retiree health benefits.
Besides depressing corporate earnings, FASB 106, as the rule is known, has already affected thousands of average Americans. For example, it has contributed to higher utility rates for Pacific Gas & Electric customers in Northern California and curbed retirement benefits for McDonnell Douglas retirees in Long Beach.
The rule change has proved an eye opener for folks like Ernest T. Oddo, a former senior manager in McDonnell Douglas’ engineering division. Until his health care benefits came under siege recently, he had never heard of FASB (pronounced “Fas-Bee” in business argot).
“This group just came to my attention,” said Oddo, who is one of about 8,000 former Douglas workers told their health care benefits have been curtailed. “I’m absolutely amazed at how much impact” they have.
For their part, FASB’s members do not take their roles lightly, although the agency’s chief acknowledges that the impact from the new rule on employees and consumers “was not our prime consideration.”
“We live in the real world like anybody else so we agonized about our decision,” said Dennis R. Beresford, the tall and trim 54-year-old CPA who heads the FASB board. “We had to balance the benefits against the consequences of not recognizing these (health care) costs.”
Most members take hefty pay cuts to serve on the board at a salary of $290,000 a year. They are drawn from the ranks of corporate financial officers, university professors and partners in major accounting firms.
And they take a lot of criticism from business executives and, occasionally, government officials. FASB’s members are picked by a 14-member board of trustees and they serve five-year terms.
“Part of our challenge is to communicate better with the public,” said Timothy S. Lucas, FASB’s director of research. “The board gets a lot of heat. But I have often told people coming here (to work) that you have to ignore that and just be turned on by the issues.”
Certainly, much of corporate America has been galvanized by the new rule requiring companies to evaluate their current and future health care costs for retirees and begin accounting for them now on their books.
In California, the state Public Utilities Commission recently granted PG&E; a $323-million rate increase--about a third of which stemmed from FASB’s new rules. The increase boosted the average monthly residential electric bill 4% to nearly $63 and the average gas bill 3% to $41.67.
The PUC’s decision came on top of similar rate increases, totaling hundreds of millions of dollars, granted seven other major California utilities as a result of recognizing their retiree health care benefit obligations.
Meanwhile, Primerica Corp., the New York-based financial services firm, said it is trimming health care benefits for about 1,600 former employees. And Unisys Corp. said it plans to phase out contributions to the medical plans of its nearly 25,000 retirees and their eligible dependents.
The new rules have also caused havoc at McDonnell Douglas, where the company recently began giving many non-union retired workers a one-time payment from its pension plan and providing them with health care insurance for only another four years.
According to the company, it took the action to avert a possible charge of up to $1.8 billion caused by the FASB rule change.
Despite the pain it has inflicted, the rule change was long overdue, many accountants say, adding that it gives investors and creditors a more accurate picture of a company’s financial health.
“In trying to be good guys in the 1960s and 1970s to attract workers, many companies had run up massive (retirement health care) liabilities,” said T. Patrick Duggan, head of a Greenwich, Conn., consulting firm that interviewed hundreds of businesses about the rule change.
“No one thought that health care costs would rise so much,” Duggan said. “But now somebody’s got to pay the piper.”
Controversy over accounting standards date back far before Rule 106. In the 1930s, the Securities and Exchange Commission--eager to free itself from setting bookkeeping rules--asked the accounting industry to take over the job. Since then, several groups have shaped the accounting principles that govern American business.
FASB has performed that job since 1974, when it was established in response to government complaints that accounting regulators were not independent from business influence. Rule 106 is part of a larger effort by the accounting profession to force corporations to better account for the effects of inflation on their businesses.
The sudden notoriety for FASB has been unsettling for a profession traditionally known for its stodginess. But like it or not, controversy now surrounds much of what FASB does.
Even Federal Reserve Board Chairman Alan Greenspan has weighed in, criticizing FASB for a proposed rule governing the value of stocks and bonds that, he says, would add volatility to the financial markets.
FASB also is criticized for being aloof--an ivory tower whose decrees are unrealistic in the rough-and-tumble world of commerce. Others say the rule-making agency is too prolific, churning out new regulations so fast that it rakes in $10 million a year selling publications to explain the changes.
Some critics also contend that the board’s narrow focus discourages outsiders from penetrating FASB’s closed world.
Though its meetings are open to the public, few outsiders attend.
