FASB: Making Financial Statements Mysterious

August 19, 2008 • Briefing Paper No. 105
By T.J. Rodgers

Since the passage of the Sarbanes‐​Oxley Act in 2002, the Financial Accounting Standards Board has passed rules that it promises will make corporate accounting more transparent. In fact, its revised Generally Accepted Accounting Principles have made it difficult for investors — or even CEOs — to understand a company’s financial report.

The first step in the wrong direction came when FASB mandated that companies list “intangibles” such as “goodwill” as corporate assets, artificially inflating balance sheets. After that, FASB meddled with the revenue recognition rules, in some cases not allowing companies to report revenue from cash payments received from a customer for a delivered product. Finally, and worst by far, FASB mandated punitive and nonsensical rules for so‐​called expensing of stock options.

These accounting burdens, combined with the onerous yet ineffective mandates of the Sarbanes‐​Oxley Act, are starting to take a real toll on American businesses and markets. In 2007, only $8.5 billion or 7.7 percent of the total $109 billion in issuances of Initial Public Offerings were launched on U.S. stock exchanges, down from 60.8 percent a decade ago.

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About the Author
T. J. Rodgers is a founder, president, CEO, and a director of Cypress Semiconductor Corporation. He is a former chairman of the Semiconductor Industry Association and sits on the board of directors of several high‐​technology companies and of Dartmouth College.