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Financial Forecasts and Projections

complexity of the issues involved as well as the strength of recognize that the ultimate determinant of a new standard
the convictions of individual board members. Once at must be the board’s judgment. As the FASB’s mission
least five board members agree on an overall answer, the statement states, “The FASB is committed to following an
board issues an Exposure Draft (ED) of a proposed stan- open orderly process for standard setting that precludes
dard for public comment. The comment period is at least placing any particular interest above the interests of the
ninety days. many who rely on financial information.”
While the ED is out for public comment, the FASB
will often conduct a field test, which is designed to test the COMMUNICATING WITH THE FASB
application of the proposed standard using actual finan- In addition to the Statements, EDs, Discussion Memo-
cial information provided by volunteering companies.
randa, and Preliminary Views documents referred to
The number of comment letters received on an ED above, the FASB publishes a variety of other documents
can range from a few dozen to more than a thousand, that provide guidance on financial accounting and report-
depending on how pervasive and how controversial the ing. For example, its Emerging Issues Task Force (EITF)
proposal is. Comment letters are received primarily from
develops consensus positions on accounting matters that
corporations, large public accounting firms, government
demand prompt solutions. EITF materials and other
regulators, academics, and financial analysts, although any
FASB publications can be ordered by individual item or
interested party is free to express his or her views. After through a variety of subscription programs that the organ-
reading the letters, the board redeliberates all the issues in ization offers. Special discounts on publications are avail-
the ED and any additional issues that may have arisen in able to parties who make voluntary contributions to
the comment and field-test processes. At the end of those support the overall work of the FASB.
deliberations, the board again votes; if there is sufficient
More information on publications or any other
support among the board members, it issues a final State- related matters is available from the FASB at 401 Merritt
ment of Financial Accounting Standards.
7, P.O. Box 5116, Norwalk, CT 06856-5116, (203)847-
The steps described above are just an overall outline
0700, or at http://www.fasb.org.
of the process. Throughout a project’s life, discussions are
held with the FASB’s advisory council, the project task SEE ALSO Accounting
force, and various other interested parties. In addition, the
process does not end with the issuance of a Statement.
BIBLIOGRAPHY
The FASB monitors the application of a Statement to Miller, Paul B. W., Redding, Rodney J., and Bahnson, Paul R.
ensure that it is working as planned. Should the standard (1998). The FASB: The People, the Process, and the Politics
not work in practice, then the board may consider amend- (4th ed.). Boston: Irwin/McGraw-Hill.
ing it to provide clarification, issuing additional interpre- Van Riper, Robert (1994). Setting Standards for Financial Report-
tive guidance, or taking some other action to address ing: FASB and the Struggle for Control of a Critical Process.
problems that arise. Westport, CT: Quorum Books.
Most FASB projects are controversial. For example,
pronouncements on topics such as accounting for Dennis R. Beresford
employee stock options, postretirement health care bene-
fits, and derivative financial instruments were strongly
opposed by many corporations and other affected parties.
The board does its best to consider the reasonable argu- FINANCIAL FORECASTS
ments expressed by all parties. But in the final analysis, the
FASB endeavors to act in the public interest by issuing AND PROJECTIONS
accounting standards that will result in the most informa- Business entities need to plan for the future, must con-
tive and unbiased financial statements possible. Thus sider alternative management strategies and prepare capi-
investors, creditors, and all others who use financial state- tal and operating budgets, and must also consider
ments in making economic decisions can take comfort in alternative funding and cash budget possibilities. An
the fact that the FASB puts the general public interest important part of the planning process is the preparation
above any concerns of individual corporations or other of prospective financial statements that attempt to predict
self-interested parties. the outcome of the business entity’s activities in future
Despite disagreement over some specific pronounce- periods.
ments, the board’s various constituents remain generally Financial forecasts and financial projections are
supportive. They know that their views are carefully prospective financial statements that present an entity’s
weighed during the FASB’s deliberations, but they also expected financial position, results of operations, and cash

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