Overhaul Proposed in Accounting Standards Board

The Financial Accounting Foundation, the body that decides who will set accounting rules in the United States, plans on Tuesday to propose an overhaul aimed at enabling the Financial Accounting Standards Board to act faster while increasing the power of its chairman, Robert H. Herz.

The proposals being put out for comment Tuesday would reduce the size of the FASB to five members from seven, and give the chairman the power to decide whether to place issues on the board’s agenda.

“The changes would provide greater focus, and improve the speed of decision making,” said Robert Denham, the chairman of the foundation, the parent group of both the FASB and the Government Accounting Standards Board, which sets rules for state and local government bookkeeping.

Mr. Denham said the proposed revisions would also involve changes in how the foundation’s trustees were chosen and would strengthen it to provide more oversight to the two accounting boards it oversees.

“We would expect the foundation to take a more active oversight role,” said Mr. Denham, adding that it would include an “after-the-fact evaluation of the effectiveness of the standards adopted by the board.”

To aid in that work, he said, the next chairman of the foundation would be expected to devote a third to a half of his or her time to the job, something that has not been required of other members of the foundation board.

FASB now has two jobs, one being its traditional one of setting accounting rules for public companies in the United States, and the second being to work for convergence with the rules of the International Accounting Standards Board, which sets rules in many other countries.

Under the proposal, the FASB would have to include one member from each of four backgrounds: investing, auditing, preparing financial statements for a company and academic accounting. The fifth member could be from any background.

The current seven-member board has no formal quotas, but it has usually included people from all of those areas, with at least two auditors.

It now takes a board vote to add something to the agenda. It is possible that concentrating that power in the chairman could lead to a more focused board, setting aside consideration of issues that Mr. Herz or his successor deemed less pressing. The foundation would have the right to oversee additions to the agenda.

The foundation now has 16 members, 5 chosen at large and the rest chosen by various organizations, including three groups of government officials. The government bodies would keep that authority while talks go on, but the other groups would lose their power to pick members. They, and other groups, would still be free to nominate candidates, but the foundation trustees could choose anyone.

The groups that choose foundation trustees — including the American Institute of Certified Public Accountants, which has three seats — currently nominate candidates that the board can reject only if they are unsuitable. If a candidate is rejected, it is up to the group that made the nomination to choose a different nominee.

Mr. Denham said no changes were planned in the membership of the GASB, which has seven members, only one of which, the chairman, is full time.

He said this was a good time to consider reducing the size of the FASB because three members are leaving this year. The terms of Donald Young and George Batavick are expiring, and G. Michael Crooch has said he wants to step down.