Management accountants are key providers of input to pronouncements from the Financial Accounting Standards Board (FASB). It’s unfortunate, then, that many management accountants consider the inner workings of the FASB to be the realm of financial accounting. To get a different perspective on the FASB’s influence over management accounting—and on management accounting’s role in helping drive FASB policy—we would be well served to become familiar with management accounting’s role in the FASB’s process for setting accounting standards. The FASB: the People, the Process, and the Politics is a vital book to help us gain that perspective.

Written by Paul B.W. Miller, Paul R. Bahnson, and Rodney J. Reddin, a fifth edition of the book was released in 2015 by Sigel Press. The book is provocative. It will make you think about the FASB and accounting in ways you never would have otherwise. The book also is challenging. It challenges us to advance the profession and to become more involved in the FASB’s process.


There are thought-provoking concepts on nearly every page. One such statement is, “The public’s interest in financial reporting would be best served when managers boost market efficiency by reporting only information that users don’t have to modify to make it useful.” Management accountants should do this voluntarily and help lead the profession to a better place. Why? Because both the FASB and the International Accounting Standards Board (IASB) “made it clear that managers who provide useful information also reap great benefits in the form of lower capital costs.” The book states and proves four axioms to support this:

  1. Incomplete information creates uncertainty for financial statement users.
  2. Uncertainty leads to higher risk for investors and creditors.
  3. Higher risk causes investors and creditors to demand a higher rate of return.
  4. A higher rate of return is also a higher cost of capital and reduces the value of the company’s securities.

This notion of increased transparency applies even more to private companies. “The clear implication is that financial statements of private companies are vastly more important than financial statements of public companies because they may represent the only information available to actual and potential users and creditors.” Missing information in public company financials can be overcome, albeit at a cost, but the financials of private companies in many cases contain all the information there is for creditors and investors.


Readers are taken on a tour of the FASB—its history, how it works, why it sometimes doesn’t, the issues it faces, its due process, governance, and compromises—and the politicization of the accounting standard-setting process. Understanding the FASB’s due process is vital to understanding its pronouncements. There are winners and losers with each successive accounting pronouncement: Some groups get what they want, and some groups don’t. By understanding the process, those who may not agree with the FASB’s final decisions can at least feel assured that the Board has received and considered their thoughts. It also points to the need to involve yourselves in this process and to make your voice heard as well as advising readers on how to do so successfully.

The profession has fallen short in providing clear, useful information to financial statement users. It can and must do better in this regard because the price to pay for the profession’s shortcomings comes in the form of higher capital costs. It isn’t just the profession: Practitioners should provide clear, useful information even when they aren’t required to do so.


I don’t think anyone would argue against the idea that the convergence project between the IASB and the FASB has led to positive outcomes: The IASB is more mature, the FASB is improved, and accounting pronouncements across the globe are more converged than many would have ever dreamed possible. But the book includes a previously published article, “The FAF’s Gift to the IASB: It’s Finally Time to Reject IFRS and the IASB for the U.S.” (from August 2014) that presents an argument against the notion of International Financial Reporting Standards (IFRS) for U.S. markets. It’s as succinct and effective as any argument I have ever read against full convergence.

Part of the argument touches on how the IASB wouldn’t want to be involved in overseeing U.S. accounting: “1) Sarbanes-Oxley would oblige the IASB to operate under the SEC’s authority to review its annual budgets; 2) the IASB’s reliance on the legally mandated accounting support fee would overshadow funding from other sources around the world; 3) working under the SEC’s close oversight to help implement U.S. federal law would obligate the IASB to be at the Commission’s beck and call; and 4) the many other duties assigned to the U.S. standard-setter (such as the Emerging Issues Task Force) would surely bog down the IASB so much that it couldn’t fulfill its global mission.”

If you’re wondering why the IASB has no chance of directing U.S. accounting efforts, this will resolve the issue in language that is clear, direct, and thought-provoking.


The authors have a general rule for many of the current accounting controversies and debates: “Not reporting needed information always increases perceived risks.” They believe that “Financial reporting should provide useful information to help investors, creditors and others assess the amounts, timing and uncertainty of prospective net cash inflows to the related enterprise.” To the extent that relevant information is not reported, risk increases along with capital costs.

All stakeholders have different goals in the financial reporting process. Companies want good news emphasized and bad news buried, auditors want to keep their clients, and the capital markets want access to timely, relevant information. Unfettered access to the true economics of an enterprise’s activities doesn’t happen today. This book views the profession through the lens of the FASB. It issues a clarion call for all stakeholders to have greater involvement in the process and to change their view from narrow entity self-interests satisfied with only meeting minimum requirements to doing more than minimum requirements to facilitate efficiency in the capital markets. George Halas once said, “Nobody who ever gave his best regretted it.” That’s as true for accounting as it is for any other profession.

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