The Financial Accounting Standards Board (FASB) is made up of seven members, six of whom are either ex-partners of major accounting firms or former high-ranking financial executives of their clients.

Unfortunately, there is no effective ombudsman or meaningful representation on the accounting standards board for tens of millions of small investors that entrust their life savings to the U.S. capital market.

However, this was not the intention of Congress when the Securities and Exchange Commission (SEC) was established in the 1930s.

The SEC has always had the power to directly set accounting standards and require their enforcement by public companies.

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On April 1, 2020, the financial news trumpeted that the FASB was taking, as Andrei Postelnicu put it in the Financial Times, ’significant steps in reforming the way companies report pension liabilities.’

The Financial Times article (FT.com, April 1, 2020) goes on to say,

‘The move aims to increase the transparency of financing for certain pension plans and replace a system in which the balance sheet “almost always” fails to reveal the true state of those benefit plans, according to the Financial Accounting Standards Board.’ However, this change in accounting standards only represents a further slow tightening of the screws regarding the way pension liabilities are reported — a step in a long, excruciating journey that has been underway for decades.

According to this summary on the FASB website:

FASB Concepts Statement No. 5, Recognition and Measurement in Financial Statements of Business Enterprises, paragraph 2, indicates that “the Board intends future change [in practice] to occur in the gradual, evolutionary way that has characterized past change.”

The GASB is taking similar, but not identical steps in requiring more truthful accounting of public pension funds.

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The S&P500 index rose 2.8% in Q3 2005, manipulated upwards by highly motivated corporate executives intent on using stock buybacks to enhance market ‘performance’ and cash in on stock options — before SEC rules requiring greater disclosure of management remuneration become effective in 2006. (Federal Reserve Flow of Funds Table F213)

Stock buybacks by non-financial domestic corporations reached a record annual rate of $446.2 billion in Q3 2005. This was 3.7 times the level of buybacks in the year 2000, the peak of the Great Bubble, and double the level of the previous record in 1998 — a year in which the S&P500 index rose 25%.

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