Comment on the Financial Accounting Foundation Draft Strategic Plan

Washington D.C.

Dear Ms. Casey and Mr. Auchincloss:

      Thank you for the opportunity to comment on the Strategic Plan Draft for Public Comment (“Draft Plan”) of the Financial Accounting Foundation (“FAF”).  We share the FAF’s commitment to independent, objective standard-setting for financial accounting and reporting.  High quality financial accounting and reporting standards are central to the success of the United States’ capital markets.  Accordingly, we write to urge the FAF to approach with care Goal #6: “Engage with stakeholders, regulators, and Congress to determine the appropriate way, if any, for the organization to contribute to future sustainability reporting.”[1]  Introducing sustainability standard-setting to the FAF runs the risk of degrading the independence and effectiveness that are the hallmarks of the FAF’s two standard-setting boards, the Financial Accounting Standards Board (“FASB”) and the Governmental Accounting Standards Board (“GASB”).

      The Draft Plan, citing the “growing demand by investors and other users of financial reports for greater consistency and comparability in reporting related to sustainability,” pledges “to ensure our organization can constructively contribute, as appropriate, to any future standard-setting relating to sustainability reporting.”[2]  Sustainability reporting is at the center of many conversations in corporate, institutional investor, and regulatory circles.  The FAF’s interest in these conversations, therefore, is understandable, but should be tempered by an appreciation for the fundamental differences between accounting and sustainability standards.[3]  These differences underpin the argument against the FAF’s involvement in sustainability standard-setting.[4]

  1. Accounting and Sustainability Standards Are Fundamentally Different

      Throughout its five decade history, the FAF and the accounting standard-setters it oversees have sought “to establish and improve financial accounting and reporting standards.”[5]  As the FAF itself has explained: “If companies . . . just made up numbers to represent their revenues, profits, or spending, the result would be economic chaos.  Investors wouldn’t know where to invest.”[6]  Standardized financial reporting makes sense of the would-be chaos and provides accurate, objective guidelines for communicating information about the financial condition and operational results of public companies.[7]  When the FAF established the FASB in 1973, it did so to “create and improve financial accounting standards that provide useful information to investors and others who rely on accurate financial information.”[8]  Since that time, the main objective of the FAF has been to ensure that the FASB fulfills its mission of establishing and improving high-quality financial accounting and reporting standards.[9]  These standards give investors confidence in financial reporting and make it easier for them to compare financial reports across time periods and companies.[10]  The singular focus of financial reporting—painting an accurate financial picture of a company for investors—lends itself to objective, auditable, quantifiable, and comparable metrics.[11]

       Conversely, sustainability standards are imprecise, inconsistent, and unfocused.  Recent comments on the SEC’s proposed climate rule[12] have cited the “incoherent”[13] and highly speculative nature of sustainability reporting and disclosure.[14]  Unlike financial accounting standard-setting, sustainability standard-setting suffers from a dearth of well-researched and established expertise.[15]  Sustainability standards are built on guesswork and data gaps.  Coping with long time horizons, obtaining hard-to-capture data, applying extremely complex modeling, identifying meaningful metrics, and similar challenges stand in the way of consistent, comparable, reliable sustainability reporting. 

      Even the perimeters and parameters of the set of issues that sustainability standards would cover are unclear.  Carefully prepared and audited financial statements provide investors with “the information they need to make decisions about how well an organization or government is managing its resources.”[16]  Financial reporting benefits all investors (who by definition share an interest in financial returns), whereas sustainability reporting currently benefits only investors for whom sustainability factors into decision-making.  Sustainability standards are aimed at a broader stakeholder audience with a diversity of objectives, some of which may conflict with one another.  Absent a clear audience or objective, sustainability standards are unbounded in scope and subject matter.  The Consultation Paper on Sustainability Reporting produced by the International Financial Reporting Standards Foundation (“IFRS Foundation”) defines “sustainability reporting” as “a catch-all phrase referring to information related to all environmental, social and governance (ESG) matters.”[17]  The Commission similarly has noted that “‘ESG’ encompasses a wide variety of investments and strategies.”[18]  Whatever the topic, it can fit within one of these broad categories.  The FASB Staff Educational Paper on the Intersection of ESG Matters with Financial Accounting Standards notes that “the categorization of topics as environmental, social, or governance is a matter of judgment.”[19] That judgment is beset with controversy.

  1. Introducing ESG-Related Standard-Setting Would Undermine the Integrity of Current Accounting Standards and of the FAF as a Guardian of the Independence of those Standards

      The inability to define, let alone produce, accurate and consistent sustainability standards invites subjectivity and political influence. If FAF were to jump into the ESG standard-setting business, it would be drawn into any number of controversial topics.  Debates around ESG standards would make the debates around controversial accounting topics, such as Current Expected Credit Loss (“CECL”)[20] and accounting for stock options,[21] look anodyne.  The temptation to resolve ambiguities in a manner that places a thumb on the scale to push capital to politically favored uses will be strong. 

      The FAF has worked hard to protect accounting standard-setting from such political influence.  Indeed, one of the key reasons for the FAF’s multi-level structure is that the FAF Trustees can run interference for the FASB and GASB.  The Foundation serves as a cocoon within which the FASB can operate without undue political influence.  FASB’s standards are not designed to push capital in politically favored directions.  The FASB Staff Educational Paper on the Intersection of ESG Matters with Financial Accounting Standards reiterates the importance of objectivity and signals to industry that any guidance from the FASB is not intended to influence capital allocation:

Financial accounting standards are not intended to drive behavior in any way, including benefitting one industry or business model over another or spurring businesses to take certain actions.  Instead, financial accounting standards are intended to provide investors and related users with decision-useful, neutral information that faithfully represents an entity’s economic activity as a basis for investment and other capital allocation decisions.[22]

The 2021 Message from the FAF Chair and Executive Director notes that “the best financial accounting standards emerge from a process that is inclusive and transparent yet independent,” and underscores that despite “near constant-pressure” to tailor accounting standards to serve particular objectives, the strength of the FAF’s leadership comes from its integrity as an independent entity.[23]  This rigorous standard-setting and comprehensive review is preserved by the FAF’s oversight and strategic counsel which “protect[s] the integrity of the process from undue influence.”[24]  

      Entangling the FAF with standard-setting in a highly politicized area will tarnish the integrity the organization has maintained over the last half-century.  The Draft Plan does not specify how it might step into sustainability standard-setting, but others have speculated about what such a step might look like.[25]  The FASB might start writing standards that are not moored to financial materiality.  The FAF instead could set up a special sustainability standard-setting body alongside the FASB and GASB.  Or the FAF could endorse standards from third-party standard-setters. 

      The risks to the FAF from pursuing any of these paths are large.  Not only would taking on sustainability standard-setting divide the FAF’s attention, staff, and resources, but it likely would contaminate financial accounting standard-setting.  The FAF’s involvement, direct or indirect, in something so subjective would jeopardize the independence and neutrality of the current financial reporting standard-setting process which is so critical to the U.S. capital markets.[26]  We fear that substandard standard-setting practices would bleed over from the more speculative sustainability standard-setting side of the FAF to the financial accounting standard-setting side of the house.  The FAF’s attempts to protect the independence of financial accounting standard-setting would be weakened by the inherently political sustainability standard-setting.

      Goal 6 of the Draft Plan highlights the creation of the ISSB and the SEC’s proposed rulemaking for climate disclosures by public companies as recent developments that the FAF somehow should mirror.[27]  Yet, this goal does not discuss how doing so could undermine accurate and objective financial reporting, which the FAF uniquely is charged with protecting.[28]  Taking on a new, politically charged initiative would undermine the historic objective of the FAF—its ability to protect the independence of financial accounting standard-setting from political attempts to shape those standards.  The FAF lays out the following vision in its draft strategic plan:

The vision of the Financial Accounting Foundation is that the organization, including the Boards, will be recognized and trusted as the leader in financial accounting and reporting standard setting in the United States, and as a prominent leader and collaborator globally.[29]

A decision to step into the fraught sustainability standard-setting fray, tempting as it may be, would impede achievement of that vision.  For that reason, please consider removing Goal #6 from the Draft Plan.

      We appreciate having the opportunity to comment publicly on the Draft Plan and would be happy to speak with you about the issues we have raised in this letter.



Hester M. Peirce                                                                                            Mark T. Uyeda Commissioner                                                                                                Commissioner


[2] Id.

[3] Letter from Scott DeViney, CPA, Chair, Financial Management Standards Board, Association of Government Accountants, et al. to Financial Accounting Foundation (June 24, 2022) at 1 ( (“…sustainability reporting is a fundamentally different subject matter than financial reporting within historical financial statements and thus we view it as outside the scope of authority of the FASB and the GASB.”).

[4] See, e.g., Letter from Richard “Dood” Forrestel, Jr., CPA, Treasurer, Cold Spring Construction Company to Financial Accounting Foundation (May 24, 2022) (,%20Cold%20Spring%20Construction%20Company) (“My take is sustainability reporting is a slippery slope and should be scoped out of FASB’s playing field. That is not to say sustainability per se . . . lacks importance but I see it as having no place in Norwalk. My fear is that FASB’s future agenda will be highjacked by non-accountants with their own agenda. Let’s stick to our knitting and not delve into places where we don’t belong.”); Letter from Richard Eckstrom, President, NASACT, et al. to Kathleen L. Casey, Chair, FAF Board of Trustees and John W. Auchincloss, Executive Director, FAF (July 21, 2022) at 3 (,%20Comptrollers%20and%20Treasurers,%20the%20Government%20Finance%20Officers%20Association%20and%20the%20National%20Conference%20of%20State%20Legislatures) (“As the purpose of sustainability reporting significantly differs from financial accounting and reporting, we believe Goal #6 is outside the mission of the FAF.”).

[5] Financial Accounting Foundation, About The FAF, (last visited July 19, 2022).

[6] Financial Accounting Foundation, The Importance of Generally Accepted Accounting Principles (GAAP), at 0:23 – 0:34, (last visited July 19, 2022).

[9] Id. at 5.

[10] Financial Accounting Foundation, supra note 6, at 1:11 – 2:00.

[11] See Hester Peirce, Commissioner, SEC, Statement on the IFRS Foundation’s Proposed Constitutional Amendments Relating to Sustainability Standards (July 1, 2021),

[12] The Enhancement and Standardization of Climate-Related Disclosures for Investors, Rel. No. 34-94867 (May 9, 2022),

[13] Letter from Benjamin Zycher, Senior Fellow, American Enterprise Institute to the Securities and Exchange Commission (June 17, 2022) at 13-14 ( (describing the deeply speculative nature of aggregate GHG emissions and the infeasibility of a single firm calculating its specific risk in contributing to global warming).

[14] See e.g., Letter from Tom Quaadman, Executive Vice President, Center for Capital Markets Competitiveness, U.S. Chamber of Commerce to Vanessa A. Countryman, Secretary, SEC (June 16, 2022) at 3, 15, 38 ( (“ . . . the Proposed Rules require untold estimates, assumptions and judgments against the backdrop of significant data limitations and speculative impacts;” “ . . . because a great deal of the climate-related risk disclosures that the Proposed Rules mandate are so speculative and uncertain and, in some instances, the requisite information is not available and compliance with the obligations would be unworkable, the current Proposed Rules would fall short of the Commission’s goal of increased consistency and comparability of disclosures across public companies;” “ . . . much of what the SEC would obligate companies to disclose is more speculative and uncertain than any other disclosures that companies currently make.”); Letter from The Business Roundtable to Vanessa Countryman, Secretary, SEC (June 17, 2022) at 1 ( (“The Proposal would also subject registrants to significant liability for disclosures that inherently involve a high degree of uncertainty.”).

[15] See Mary Barth, Vice Chair, Board of Trustees, Financial Accounting Foundation, Remarks at the University of Texas Texas ScholarWorks “Special Track Session for the 2nd Annual UT PhD Symposium: Standard Setting, ESG, Climate,” (Aug. 16, 2021) at 20:49-28:14,

[16] Financial Accounting Foundation, Accounting Standards, (last visited July 20, 2022).

[17] IFRS Foundation, Consultation Paper on Sustainability Reporting, at 17 n.39 (Sept. 2020),

[18] Press Release, Securities and Exchange Commission, SEC Proposes to Enhance Disclosures by Certain Investment Advisers and Investment Companies About ESG Investment Practices (May 25, 2022), on file at

[19] Financial Accounting Standards Board, FASB Staff Educational Paper: Intersection of Environmental, Social, and Governance Matters with Financial Accounting Standards, at 2 n.1 (March 19, 2021),,...

[20] See e.g., Arianna Pinello, PhD, CPA, CIA and Ernest Lee Puschaver, CPA, CECL Encounters a “Perfect Storm,” CPA Journal (August 2020),; Nicola M. White and David Hood, Loan-Loss Accounting Rule Worked in 2020, But Banks Hate It, Bloomberg Tax (May 20, 2021),

[21] See e.g., Karen Berman and Joe Knight, Expensing Stock Options: The Controversy, Harvard Business Review (August 28, 2009),; Wayne Guay, Expensing Stock Options: Can FASB Prevail?, Knowledge at Wharton (June 2, 2004),

[22] Financial Accounting Standards Board, supra note 19, at 3.  See also Wesley Bricker, Chief Accountant, SEC, Remarks to the Institute of Chartered Accountants in England and Wales: “The intersection of financial reporting and innovation” (June 6, 2018), (“As noted by former SEC Chief Accountant Wes Bricker, “when formulating standards for general purpose financial reporting . . . the FASB [does] not seek to influence the outcome of investor capital allocation decisions or actions taken by management; instead, the boards’ design standards that provide better information to inform those decisions and actions.”).

[23] Kathleen L. Casey, Chair, Financial Accounting Foundation, and John W. Auchincloss, Executive Director, Financial Accounting Foundation, Message from the FAF Chair and FAF Executive Director (2021),

[24] Financial Accounting Foundation, supra note 8 at 7.

[25] Barth, supra note 15, at 20:49-28:14.

[26] Id.

[27] See Financial Accounting Foundation, supra note 1, at 9.

[28] See Casey and Auchincloss, supra note 23.

[29] See Financial Accounting Foundation, supra note 1, at 4.

Last Reviewed or Updated: July 25, 2022