Agenda - Council - 05/12/1981 - Laserfiche WebLink

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I~, THEWE,EK IN REVIEW-81-19 -3- MayS, 1981 cisions that further social goals even at the expense of shareholder returns. This is sometimes call- ed the managerialist view of the corporation because it views the responsibilities of the managers of the corporation as transcending the investor. Consistent with the changing social environment, the FASB recognized that the stewardship objec- live of 50 years ago was not enough: To the extent that management offers securities of the eh- terprise to the public, it voluntarily accepts wider responsibilities for accountability to prospec- live investors and to the public in general. Accounting Issues Inflation and pensions are two of the most critical [accounting] issues in these turbulent times. Both involve national economic and social policies. Both involve financial accounting measurements. Both are issues with which the FASB is dealing. Although resolution of the accounting questions must reflect the full dimension of the issues, fur- therance of the national economic or social policies concerning control of inflation or retirement income security is not a relevant objective for the accounting standard-setter. Inflation Conventional accounting has served us well when prices were relatively stable. But, given the recent levels of inflation, one finds it hard to refute the cohtention that some portion of the conven- tional earnings measure represents an erosion of real capital. Statement 33 helps investors, mana- gers, and others distinguish returns on investments from returns of investment. Nonbusiness organizations are not immune to the ravages of inflation, and in my judgment measure- ment of capital erosion is as essential for these organizations as it is for a business enterprise. A not-for-profit institution must pay its operating expenses and replace its capital assets at today's inflated costs in order to maintain its present level of service capability, just as an investor-owned enterprise must, and the purchasing power of its net monetary assets is eroded by inflation every bit as much as that of a commercial business. Although nonbusiness organizations are expressly encouraged to disclose information in accordance with Statement 33, they are not required to do so, and to my knowledge few have responded to the Board's. encouragement. At this point, Statement 33 is an experiment. But I suspect that we will be considering whether and how to extend the applicability of the Statement in the not-too-distant future. Although the Board believes that the information called for by Statement 33 will be of benefit to government officials and others concerned with income tax policies and national economic pol- icymaking in general, the Board developed the Statement as neutrally as was possible-without any intention of influencing those policies in any particular direction. Advocacy of particular tax or'national economic policies is an inappropriate role for the FASB. Our responsibility is to help provide evenhanded information fo~ those whose responsibility it is to develop those policies. Pensions In 1974, in response to widespread public concern about the viability of some private pension plans and the ability of sponsors to make good their commitments, Congress enacted the Employee Re- tirement income Security Act. An important result of ERISA was a new or reinforced sense of accountability of pension plans to their participants. As a result of ERISA and ~ recognition of the changed accountabilities of pension plans and their sponsors, the FASB undertook several related projects, one of which ended in March of last year