National Press Club

FASB Chairman Says Transparency Key to Sound Financial System

June 29, 2009 | By Hope Katz Gibbs | hope@hopegibbs.com

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“One welcome development that has arisen from the financial crisis is that a broader constituency is calling for greater transparency as necessary ingredient for recovery and the rebuilding of investor and public confidence,” said Robert Herz, chairman of the influential Financial Account Standards Board, at a June 26 Club luncheon.

While accounting did not cause the crisis and improvement of standards will not end it, Herz said, “it did reveal a number of areas requiring improvement of standards and overall transparency.”

Transparency, Herz said repeatedly in his hour-long speech, is the key to getting the country back on its feet — and keeping the world from suffering another economic crisis.

“Transparency is not just a buzz word or a cliché,” insisted the man who has headed the FASB since July 2002, and whose opinions and observations weigh heavily in any discussion of market regulation. “It is a fundamental and absolutely essential attribute of sound financial markets. Relevant, trustworthy, and timely information is the oxygen of financial markets. Depriving markets of such information — or polluting the information — can have very adverse consequences.”

Prior to taking over FASB, Herz was a senior partner at PricewaterhouseCoopers, serving as its North America theater leader of professional, technical, risk and quality, and a member of its global and U.S. boards. His 2001 book, “The Value Reporting Revolution: Moving Beyond the Earnings Game,” suggests he may have seen the financial crisis looming for critics agreed it delivered a biting analysis of the problems that plague today’s capital markets.

“Unfortunately, there have been certain major companies — including ones that subsequently failed and had to be rescued by the government — and industry trade groups that have sought political intervention into accounting standard setting. While that is their right, and while we certainly welcome active dialogue with lawmakers, politicization of accounting standard setting by special interests risks undermining public confidence in the integrity of financial reporting,” he said.

Changes need to be made, he said, “because we cannot again allow huge, unregulated and opaque financial markets.” Herz asserted that new infrastructures must be created — ones that have effective regulation, oversight and enforcement.

“I would be supportive of a greater decoupling between the determination of bank regulation capital and our standards,” he said. “I also believe that the reforms need to convince the American public that we have taken the steps necessary to move beyond the one-way capitalism, the ‘heads I win, tails everyone else loses’ mind-sets and practices that have, quite rightly in my view, sparked widespread outrage.”

Herz said he is “an eternal optimist” who believes his organization is up to the task of initiating positive change.