Robert J. Bricker and Gary J. Previts, eds. The Murphy-Kirk-Beresford Correspondence, 1982-1996: Commentary on the Development of Financial Standards. New York: JAI Press, 2001. x + 223 pp. ISBN 0-7623-0834-6, $85.00.
The fifty-seven letters that form the core of this volume afford a narrow but useful perspective on a private debate between key business and professional leaders on the direction of financial accounting standardization during the 1980s and 1990s. They were written by Thomas A. Murphy, then retired chairman of the board of General Motors (GM), and by two successive chairs of the Financial Accounting Standards Board (FASB), Donald J. Kirk, a former partner of Price Waterhouse (now Pricewaterhouse, Coopers) and Dennis R. Beresford, a former partner of Ernst & Whinney (now Ernst & Young). A brief foreword by Eugene A. Flegm, former general auditor of GM, provides details about Thomas Murphy's career, especially his role in helping to form the FASB in 1973. Unfortunately, the volume lacks any contextual discussion by the editors.
Initiated by Thomas Murphy, the correspondence reflects his deep concern about the direction of financial accounting standardization. A major worry from his perspective was the danger that the FASB, in seeking to enhance the economic relevancy of accounting measurement, would increase the complexity of financial disclosure and thus reduce its comprehensibility. Although he conceded the theoretical superiority of the new approaches, Murphy recognized that the requisite data were not always readily available to measure complex economic processes. He feared that the quest for relevancy might foster reliance on more subjective and difficult to assess forms of estimation, such as "mark to model" valuations for items that cannot be verified by information from active markets. Revelations of the shortcomings of accounting at Enron and Global Crossing, for example, give credibility to such concerns. Part of Murphy's reaction probably was a function of his education, as Flegm implies in his foreword. Murphy's training occurred before World War II in the elite accounting program at the University of Illinois, when the proprietary [End Page 175] model of accounting, with its emphasis on the objective matching of revenues and expenses and on the primacy of the income statement, was in vogue.
Though there may have been some element of intergenerational difference in perspective motivating Murphy's criticisms, there was also doubtless a deep concern about the impact of the FASB's new directions on GM. This seems evident from his associational activities. During the 1970s Murphy persuaded the Business Roundtable, the representative organization of the nation's top fifty businesses, to place accounting matters on its permanent agenda, because he felt that the corporate membership of the Roundtable would have to bear the consequences of the paradigm shift that transformed contemporary accounting. One such event illustrating the material impact of accounting change was the treatment of nonpension postretirement benefits, principally health coverage. Under FASB Opinion 106 (promulgated in 1992), this liability's net present value had to be accrued for all qualifying employees instead of recognized on a pay-as-you-go basis, as had previously been the case. The initial adjustment necessary to bring GM into compliance amounted to $20 billion, helping to push the firm into an overall deficit of $23 billion that year. Thomas Murphy had good reason to be concerned about accounting standardization.
Although the correspondence affords insight into the relationship between business and a key professional regulatory body, the interaction seems to conform more closely to the theoretical predictions of Louis Galambos than to those of Gabriel Kolko. Murphy worked diligently to shape the FASB's standard-setting agenda, but his impact on the leadership of chairmen Kirk and Beresford seems limited. Although both FASB representatives shared Murphy's letters with their boards and key staff, their responses were notable for their diplomatic defenses of questioned FASB actions. Moreover, some of the standards that the FASB promulgated during this period incorporated methodologies that were unpopular with many in the Business Roundtable. In fact, the private regulatory body proved difficult for any single sponsoring interest group to control. Instead of capture, the FASB seemed to be an organization in which consensus building was the key dynamic. The overriding need for consensus formation had its shortcomings, however. Although no single group might have sufficient power to control events, they all seemed capable of challenging efforts to introduce new standards by forcing delay or methodological compromise. Yet, despite differences that arose about technical accounting issues, a common sensitivity unifying all of the FASB's adherents was the desire to maintain private-sector regulation. In addition, the key to the achievement of that goal was that [End Page 176] accounting governance had to be broadly perceived as being effective and in the public interest.
This text would serve as a useful reference for both undergraduate and graduate students in courses dealing with either accounting history or theory. And, although the discussion often is very technical, it might also prove useful to researchers of professionalization processes.
Paul J. Miranti, Jr.
Rutgers Business School
