Keep It Simple

Some of the statements of the Financial Accounting Standards Board (FASB) are far too complicated, such as FASB Statement 96 on income taxes, Statement 87 on pensions, and Statement 13 on leases. The FASB needs to keep future statements simple. However, it cannot just set forth a simple standard, state the objective, and leave it to the judgment of preparers and their accountants to implement the standard. An example of a simple, nonjudgmental standard that has been successful is FASB Statement 14 on segments. This statement says that, if 10% or more of total revenues are from a segment, then data for the segment shall be reported separately. Accounting standards and the results of applying the standards have to be understandable to ordinary people. Moreover, the cost of change to a new standard and the cost of continued compliance should not exceed the benefit.