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Professor Daniel Jensen, Chairman of the Accounting Hall of Fame Committee, has sent the following public announcement.

Robert H. Herz Elected to The Accounting Hall of Fame

Columbus, OH – Robert H. Herz, former chairman of the Financial Accounting Standards Board, has been elected to The Accounting Hall of Fame. Honorees are selected annually by the Accounting Hall of Fame’s international board of electors. Eighty-nine influential and respected accountants from academe, accounting practice, government and business have been elected to the Accounting Hall of Fame since its establishment in 1950 at The Ohio State University’s Fisher College of Business.

Mr. Herz served two terms as Chair of the Financial Accounting Standards Board from 2002 to 2010. Prior to joining the FASB, he was a senior partner with PricewaterhouseCoopers, serving as North American Theater Leader of Professional, Technical, Risk & Quality and a member of the firm’s Global and U.S. Boards. He also served as a part-time member of the International Accounting Standards Board. Mr. Herz joined Price Waterhouse in 1974 upon graduation from the University of Manchester (UK). He has authored numerous publications on a variety of accounting, auditing and business subjects, including the book, The Value Reporting Revolution: Moving Beyond the Earnings Game.

I asked Bob Herz about his personal response to the news.  He said,

My immediate reaction was ‘Wow, this is quite an honor.’  I know and greatly respect many of the living members of the Accounting Hall of Fame and, as a student of accounting history, I have read about many of the past members of the Hall who helped shape our profession and accounting and auditing theory and practice. It also reminded me of how lucky I have been in my choice of profession and in the many wonderful colleagues I have had throughout my career.

It is quite an honor, indeed.  Congratulations.  You deserve it.

Debit and credit – – David Albrecht


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Robert Herz

I have confirmed with Professor Emeritus Daniel L. Jensen, Chair of the Accounting Hall of Fame Committee, that Robert H. Herz has been selected for induction into the Accounting Hall of Fame.

Robert Herz was chair of the Financial Accounting Standards Board (FASB) from 2002-2010.  Prior to that he served part-time on the International Accounting Standards Committee (IASC), and was a partner at PriceWaterhouseCoopers (PWC).

The induction probably will take place in Washington, D.C., in August at the annual meeting of the American Accounting Association.

An official press release is forthcoming later this week.  I have asked Mr. Herz for a comment.

Dennis R. Beresford, former Chair of the FASB and current professor at U of Georgia Terry School of Business, has this to say:

Bob Herz is the first person who has served on both the IASB and FASB. He served with great distinction as FASB Chairman for over eight years during some very challenging times for the Board. Probably his greatest contribution was his untiring work to converge accounting standards worldwide while not sacrificing the high quality of U.S. standards in the bargain. Bob continues to serve the profession as an Executive in Residence at Columbia University, a member of the board of directors and audit committee of Fannie Mae, a member of the PCAOB Standing Advisory Group, and in many other capacities. And he continues to speak to numerous academic and other audiences on important accounting issues of the day. In short, I think he’s clearly a terrific choice for the Accounting Hall of Fame!

Stay tuned.

Debit and credit – – David Albrecht


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Robert Herz has resigned as Chair of the Financial Accounting Standards Board (FASB), effective October 1.   Concurrently, the FASB is returning to seven members from the current five.  The official announcement is posted here.  This development is sudden and unexpected.

A process has been initiated to search for a new chair and two new board members.

Why now? Herz is under no pressure to leave, and there are several professional reasons for him to stay.  It is my guess that this is motivated solely by personal concerns, possibly health related.   I wish the very best for the Herz family.

What are the implications for the convergence of U.S. Generally Accepted Accounting Principles (GAAP) with International Financial Reporting Standards (IFRS)? There are three major possibilities:

  1. Convergence time table and Securities and Exchange Commission (SEC) Roadmap are pushed back one year. This is because the search process will take five or six months and three new members could need up to six months to get up to speed.   Probability:  65%.
  2. Convergence ends, and the SEC votes in 2011 to adopt IFRS.  Probability:  30%.
  3. The SEC votes to retain US GAAP instead of moving to IFRS. Lip service is paid to continuing the convergence process, but it is not a high priority.   Probability:  5%.

What is Herz’s legacy? Herz has been a strong advocate for converting American financial reporting from the U.S. GAAP basis to the IFRS basis.  An accurate generalization is that Herz has been focused on changing the accounting standards instead of improving the accounting standards already in place for American companies.  The conversion process has essentially been one of compromise between existing GAAP and IFRS standards.   Although the two boards pay lip service to improvement, there really hasn’t been much.

History remembers the names of those who help bring about profound change, so long as it benefits future generations. Not much chance of that here.

Robert Herz and Christopher Cox led the IFRS Railroading Express

In 2007-2008, there was considerable dissatisfaction with the way that SEC Chair Christopher Cox and Herz were pushing IFRS.  Bob Jensen (emeritus accounting professor) labeled this the Cox-Herz Railroading Express.

What about the increase from five to seven board members? Earlier today on AECM, Bob Jensen wondered if the 2008 decrease in board members from seven to five was to get rid of two that might have delayed convergence.   It’s clear Herz wanted only five that he could work with.   However, convergence is a lot of work and two more board members might be needed now to get the work done.

Debit and credit – – David Albrecht

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[Postscript:  a well placed observer has questioned the wisdom of my claiming that certain SEC commissioners are ignorant.  Upon glancing through transcripts of the commissioners’ remarks (released after the publication of this essay), I can understand now how “ignorant” was a poor choice of wording, and I apologize to the Commissioners for that word usage.  At the time I wrote the essay, I was grasping for some reason why certain commissioners continue to spout sophistry (false reasoning).   I chalked it up to ignorance.  I now realize that I might never know the reason for the sophistry, as the SEC principals refuse to discuss the assumptions and conceptual foundations of their sophistry.   Never-the-less, sophistry it is, and that’s what I was reacting to.  Were I to write the article today, I would title it either:  SEC Sophistry To Lead to Folly, or, SEC Errant Views To Lead to Folly.  Profalbrecht, 11/27/09]


Yesterday, a third Commissioner of the Securities and Exchange Commission spoke out, (1) decrying the politicization of the accounting standard setting process, and (2) advocating the need for a single set of global accounting standards.  By so speaking she aired her ignorance for all to see. [Sentence removed 11/27/09]

 

As reported in a Reuters update, “SEC’s Casey: Accounting Convergence Must Continue,” Kathleen Casey “warned against the over politicization of accounting rules, or attempts to pressure accounting rule makers to write rules that would favor a specific goal sought by a particular industry.”  Earlier this week, another SEC Commissioner, Elisse Walter, said the same thing.  SEC chair Mary Schapiro has been saying it since her confirmation hearings   Not to be left in the cold, FASB Chair Robert Herz chimed in with a similar sentiment.  Of course, they all chant the mantra of global accounting standards.

They are wrong.  I hope everyone in the world knows it. [Sentence deleted 11/27/09]

Here’s why they are wrong.

There is no such thing as universal accounting truth. Accounting rules spring from the reason of human beings.  The rules and principles that guide today’s capital markets are recent inventions.  The most cherished accounting axiom–assets equal liabilities plus owners equity–has been around less than six hundred years.  Before that there was simply no need for it, therefore it wasn’t yet invented.  Here’s a news flash:  that accounting axiom is obsolete and no longer works in today’s world (we’ve piled so much on it, it no longer balances).

Accounting rules that govern the formation of corporate financial statements all have economic consequences.  It has always been this way.  Every rule puts some interest group at an advantage over another.  From the start, investors have clamored for more disclosure than the executives running corporations have wanted to supply.  This tension is natural.  There is no right or wrong in an absolute accounting sense, God has no such commandment.

It is any (or every) government’s domain is to adjudicate between competing economic interests.  That is what government does.  For example, governments are good at levying and collecting taxes.  This has been going on since the beginning of human history.  And what is tax but one group being forced to transfer it’s money to another group.

How does a government decide between competing interests?  By politics.

It is foolish for anyone to abdicate his/her right to seek a political solution to any political, economic, social or military issue.   Why would anyone want to do that?  It is tantamount to denying the person’s free will, “No, I’m too stupid to decide for myself, you do it for me.  Really, I insist.”

We have not always realized the political nature of standard setting in the U.S.  However, since the formation of the FASB every potential accounting standard has had to go through a political process:  discussion memorandum, then exposure draft.  And the SEC always  has the ability to override (which it has upon occasion).

Why then, are these people decrying the current politicization of accounting standards? It is because they don’t want to get trumped by someone else’s politics.

They are using a time-tested tactic:  state a fallacy long enough and long enough and pretty soon it is accepted as verdad!

Please realize that no SEC commissioner has taken advanced education in accounting.  Nor has the chief accountant.  Nor has the current chair of the FASB. [Sentence removed 11/27] I put forth the notion that possibly, just possibly, they have missed out on something that the rest of us have known for a long time.  It is the way of human beings that accounting standard setting is a political process.

If you can buy into that, then here’s the rest of the truth.  Political factors, and the governmental processes that adjudicate between them, are not the same all over the world.  They are different in parts of Europe and Asia than they are in the U.S.  As a result, the League of Nations could not function as envisioned, neither could the United Nations.

Similar political processes affect accounting standard setting.  Surprise!  How reasonable is it to think that global accounting standard setters are going to be responsive to economic interests in your part of the world?  France is already discovering that the IASB’s IFRS are not responsive to certain French economic interests.  So France is balking.  As it should.  Ceding control of French economic interests over to the IASB was a stupid thing to do.  It was incredibly stupid.  And so it will be if the U.S. does likewise.

Unfortunately, the SEC commissioners are ignorant of all things accounting.  It’s ignorance is leading it to adopt IFRS.  And that, my friends, is pure folly. do not understand that they are sophist in the ways of accounting,   Sophistry acted on is folly. [remarks edited 11/27/09]  A folly that will cost of us trillions.

The SEC's sophistry is a crying shame! (edited)

As has been chronicled in this blog, the smartest and wisest accounting professors (the nerds who study accounting for a living) have carefully explained why there should be no single set of global accounting standards.  The SEC, though, is ignorant. That, or its commissioners are not educated enough to understand.sophist [edited 11/27/09].  Sob, that’s a crying shame.

Debit and credit – – David Albrecht

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This is part six of an eight-part series in which I review the seven IFRS critics (Sunder, Niemeier, Ball, Ketz, Selling, Jensen & Albrecht) of whom I am aware.  The series continues on regular posting dates, MWF.

Robert E. Jensen

Robert E. Jensen

In today’s essay, I review the anti-IFRS views of Robert E. Jensen, Ph.D., as summarized from his posts to the AECM listserv (Accounting Education Using Computers and and Multimedia) and on his web site page on accounting standard setting controversies.

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