The Financial Accounting Foundation (FAF) is the non-profit corporation organized by the AICPA and co-sponsored by four other private interest to operate the Financial Accounting Standards Board (FASB), which sets accounting standards.* Those groups are the Financial Executives Institute, the Xational Association of Ac- countants, the American Accounting Association, and the Financial Analysts Federation. None of those private interest groups is suited to control the setting of accounting standards which affect the Federal Government and the public.
The FAF is comprised of nine trustees who are selected from the five sponsoring groups in the manner summarized on Chart 3. The AICPA maintains control over the FAF board of trustees because the exclusive power to elect and remove them is vested in the AICPA’s board of directors, whose chairman is automatically designated as one of the trustees. The other sponsors only have the authority to nominate a single trustee each.
Eight of the nine FAF trustees are AICPA members. Only one of the trustees supposedly representing the other four sponsoring groups is not also a member of the AICPA. In addition to the control they exercise through the AICPA over the selection of all trustees, the “Big Eight” had three representatives serving directly as FAF trustees in 1976.
The board of trustees has two principal responsibilities — to appoint members of the FASB and the Financial Accounting Standards Ad- visory Council (FASAC), and to arrange for financing of the entire FASB organization. That organization is comprised of the FAF, the FASB, and the FASAC,
Exclusive authority to appoint and remove FASB members is vested in the FAF board of trustees, who cannot themselves simul- taneously serve on the FASB. FASB members can be removed for “reasonably evidencing conduct detrimental to the purposes or repute of the FASB.” Thus, FASB members are not truly independent of the trustees once they are appointed to office. The trustees themselves can be removed by the AICPA’s board of directors for conduct “detri- mental to the purposes or repute of the FAF or the FASB,” so they are not truly independent either.
Financing for the FASB organization comes almost exclusively from its five private sponsoring groups and their members. All of the groups have pledged to support the FASB financially, but their contributions are not equal. Contributions to the FASB are concen- trated among the large accounting firms and major corporations which would be most affected by any major reform of accounting standards.
The accounting profession donates about half of the money con- tributed to operate the FASB. In 1975, a total of $4,129,201 was con- tributed to operate the FASB, and the accounting profession donated $2,059,076. The “Big Eight”, the AICPA, and 41 other accounting firms donated 99.6 percent of that amount.
Contributions from the other FASB sponsors were much smaller. The National Association of Accountants, another organization repre- senting business interests, contributed $75,000 in 1975. The American Accounting Association, which primarily represents academic ac- countants, donated only $6,876. The Financial Analysts Federation contributed $7,000.
Contributions for operating the FASB are made to the FAF which, after deducting its small operating expenses, passes the money to the FASB. That procedure is intended to create an impression that the FASB is insulated from the monetary influence of its sponsors. Donations to the FAF are tax-deductible, so the taxpayer partially subsidizes operation of the FASB.