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Here are some thoughts from former SEC Chief Accountant Lynn Turner:

Recently, the Council for Institutional Investors submitted this letter to the IASB Trustees. It points out a couple of important issues. First, there is a growing group who are pressing for the accounting standard setters to have to consider financial stability when writing their standards. For example, the IASB and FASB would need to consider if it were more important to have the financial statements actually reflect the economics of the transactions they had entered into (commonly referred to as “representational faithfulness”) or would have to let companies (eg. banks) smooth their earnings in down times and avoid reporting losses so as to try to create an image of financial stability.

In the past, standard setters have attempted to be neutral and not reflect the desires of macro economic policy. That is because when financial statements do not reflect faithfully what a company has done, it results in investors allocating capital to companies that probably should not receive it – and away from those that should – reducing the returns investors can achieve and market efficiency.

The CII letter points out that convergence to a single set of accounting standards cannot occur without consistent, uniform enforcement of the standards, something that does not exist today – and the CII letter also points out that independent funding for the IASB is necessary, again something that does not exist today.

For some historical perspective, consider this article from the 1980s by a retired Deloitte Senior Partner and retired member of the FASB and its predecessor discussing this topic and the implications of what some propose today. It notes how some, such as banks, have been arguing for eliminating neutral accounting standard for as long as accounting has been around in the United States.

Are Auditors Becoming Irrelevant?

Here’s an interesting article from GuruFocus.com entitled “Are Auditors Becoming Irrelevant?” Jim Peterson has been consistently pounding away at the theme that “the audit model is broken” in his “Re:Balance Blog.”

Spencer Stuart’s 25th Annual Board Study

Recently, Spencer Stuart issued its 25th annual study of S&P 500 boards – that certainly is a long time for corporate governance given it’s only become a well-known term for the past decade. Obviously, much has changed over this period – in 1986, the focus was on the “outsider/insider composition” of the board rather than the larger concept of “independence.” The average board size was 15 with a 3:1 ratio of outsiders to insiders. Today the average board size is 11 with a 5:1 ratio of independents to non-independents.

In 1986, only three boards of the 100 reviewed had the chairman/CEO as the sole insider. Today, the chairman/CEO is the only insider on more than half of S&P 500 boards and 40 percent of boards split the chair and CEO roles with 19 percent of chairs truly independent. There are plenty of other interesting stats in the study…

– Broc Romanek