Question

the chair of the FASB at one time noted that "the flow of standards can only be slowed if (1) producers focus less on quarterly earning per share and tax benefitd and more on quality products and (2) accountants and lawyers rely less on rules and law and more on proffessional judgment and conduct." explain his comment.

Answer 1

The chairman of the FASB was making an attempt to bring to light that a lot of emphasis is being put on quarterly earnings per share and tax benefits rather than focusing on the development of quality products. Managers in their pursuit of wanting to make short term gains lose sight of the long term gains or benefits and in the bargain this may also lead to long term complications and problems.

The other part (b) of the comment throws light on the attitude of the accountants which is that they focus only on complying with the rules. This way of functioning of the accountant arises from the approach and attitude of the accountants of only wanting to save themselves in the event of a litigation under the garb of having followed all the rules completely. So what happens in reality is that accountants will desire for more and more rules so that they hardly have to rely on their professional judgement. When these accountants do not use their professional judgement in an effective manner it leads to unsuitable accounting procedures in complicated situations.

There are a number of legal decisions that have been delivered recently that have actually increased the liability on the accountants. These decisions brought forth the view that the accountant is responsible to a number of different classes of the society and the range and scope of his responsibility is also wide and therefore these legal decisions work as a defense in favour of the accountants approach.