Conversation with Dennis Beresford

Joe: I am delighted today to be talking with Dennis Beresford, one of the most influential accountants in the history of the profession. Just as importantly from the perspective of this blog, he has also spent quite a number of years as a teacher.

Denny, I recently read one student review of your class that said: "Excellent in stimulating student's interest in accounting matters. Very intelligent and dynamic. Good class to take for improving research, critical thinking, and communication skills."

You have certainly had a wonderfully wide and varied career. Can you furnish us with a short biography of some of your many accomplishments over the years?

Denny:   The short biography is 26 years in public accounting with what is now Ernst & Young, 10 ½ years as Chairman of the FASB, and 16 years as E&Y Executive Professor of Accounting at the University of Georgia.

I began as a staff auditor in the Los Angeles office of E&Y and worked there for about 10 years. I then spent the next 16 years in the National Accounting & Auditing Department, coming to focus mainly on financial accounting matters. During that time I served on the AICPA’s Accounting Standards Executive Committee for 6 years, including 3 as Chairman, on the Financial Accounting Standards Advisory Council (advisers to FASB) for 4 years, on the International Accounting Standards Committee for 2 years, and was one of the original members of the FASB Emerging Issues Task Force.

During my time at the FASB we dealt with any number of challenging issues, but the most controversial was accounting for stock options. In that case, Congress proposed legislation that would have effectively put the FASB out of business. We decided to make a strategic retreat and issued a final standard that required new disclosures and not new accounting. But the Board did not back down on many other demanding issues such as post-employment benefits, income taxes, and marketable securities. Perhaps the greatest achievement during my time at the Board was the beginning of the FASB’s international activities, which have now resulted in many of the most important topics being developed as “convergence” projects with the IASB.

Beyond my academic career, I have enjoyed the opportunity to serve at the same time on a number of major corporate boards. Most notably, I became a director of WorldCom and its audit committee chairman in time to help lead the special investigation of what was the world’s largest financial reporting fraud and subsequent restatement. At the same time the company was going through the world’s largest corporate bankruptcy reorganization. Shortly after that was finished and WorldCom was sold, I joined the board and became audit committee chairman of Fannie Mae, which had its own major financial reporting fiasco. I oversaw the restatement of that company’s financials over the next year and a half and was asked by the federal government to stay as a director when the company was put into conservatorship as a result of the Great Recession. These corporate governance experiences were among the most interesting, challenging, and rewarding of my entire career.

Joe:   You have certainly worked with some well-known organizations as they have gone through critical times.   As we all know, college education is under attack at present for many reasons including a perceived failure to develop critical thinking skills and, of course, the escalating cost and mounting student debt load.   You have been at the University of Georgia for nearly two decades so you have seen much of college education from the inside—up close and personal.

This is certainly not the same type of situation as WorldCom or Fannie Mae.   But it is a legitimate crisis.  I am extremely curious.   If you were hired as a consultant to advise the hierarchy of college education, what would be the first one or two pieces of advice that you would give?

Denny:  Keep in mind that my role at WorldCom and Fannie Mae was primarily to help with the accounting. So that doesn’t necessarily make me a “big picture” expert. With that stipulation, what I’d primarily suggest is devoting more resources to actual education – student instruction – and less to research and administration. In at least the major research universities such as where I’ve been for sixteen years, tenured and tenure track faculty often teach four or fewer classes a year. Similar to business practice, there should be more of a cost/benefit test applied to the research for which those faculty members are freed up – is it really worthwhile? If not, those resources should be redirected to the classroom. Further, administration headcount seems to be growing at a faster rate than faculty at many schools and in the business world this relationship between “direct and indirect labor” would probably be challenged more quickly.

Probably the second piece of advice would be for colleges and universities to engage even more directly with the business community. After all, a college is a business, albeit a not-for-profit one. Thus, ideas and assistance can be gained from many in the business community and grads, local companies, and many others are almost always willing to help. Unfortunately, there is still a very cynical attitude toward business on many campuses and many professors and even students are wary about corporate motives. The reality, of course, is that businesses do much to help already, but engaging further could help break down some of these communication barriers and lead to an even more productive partnership.

Joe: What courses did you teach during your time at the University of Georgia? Most teachers that I have met have days in class that seem to go just perfectly. There are never enough of those days but there are some. However, those days help us understand what the class environment is supposed to look and feel like. Can you describe what a perfect classroom day felt like when you were teaching? I am interested in getting a vision of your style of teaching.

Denny:   I was fortunate to be able to limit my teaching to two classes: the financial accounting class for MBA students and “Accounting Policy & Research” for MAcc students. I taught the former for full-time, on-line, and executive MBA classes and for the latter two categories I developed the materials the first time the classes were taught at Georgia. I tried to fill those basic accounting classes with lots of practical experiences from the business world so that students could see how accounting is used to make decisions that will determine the success or failure of an enterprise.

While I enjoyed those MBA classes, I felt the MAcc classes were where I could really contribute more. The objective of the Policy class was to have the students develop an understanding of how the specific rules on leases, etc. that they learned in undergrad classes were applied in real world situations. For example, the students had to research and prepare case reports on such matters as the accounting for LeBron James’ first shoe endorsement contract with Nike. But the most important part of the class was the nearly daily assigned readings and directed discussions on many of the accounting theory issues that had challenged the FASB, SEC and others over the years and were continuing to do so.

I would begin by introducing one of the discussion questions I had developed based on the assigned readings and ask for a volunteer to give his/her opinion. To be clear, students understood this part of the class was designed to help develop their critical thinking skills and to make them less nervous about offering an opinion on a technical matter. And they knew that participation was an important part of their grade! On a perfect day, a high percentage of the class would eagerly volunteer and I would only have to call on a few students to ensure near 100% participation. Some of them would get frustrated because they’d say, “But we just want to know what you think!” I’d add a bit of my wisdom along the way but I always felt that my main responsibility was to have the students do their own thinking.

Joe:   It sounds like you and I teach in much the same manner.   Students always like for us to give them answers but I’d prefer for them to figure the answers out for themselves.  

Okay, I have one final question.   Earlier in this conversation, you mentioned that you felt that the greatest achievement during your time at the Board “was the beginning of the FASB’s international activities, which have now resulted in many of the most important topics being developed as ‘convergence’ projects with the IASB.”

Over the last few years, opinions as to the long-term viability of both international accounting standards and US GAAP have moved up and down on almost a daily basis.   What do you think will eventually happen in regard to the differences that continue to exist between IFRS and US GAAP?

Denny:   The FASB and IASB are wrapping up work on four major convergence projects and on only one of them – revenue recognition – have they been able to reach similar conclusions. For financial instruments, insurance and probably even leases it appears U.S. GAAP and IFRS will continue to diverge. But these joint efforts over the past twenty years or so have substantially increased the quality of accounting standards around the world due in large part to the FASB’s willingness to take a bit of a “servant leadership” role during this period. In other words, while there has continually been insistence on the highest possible financial reporting standards, there’s also been recognition that all good ideas aren’t necessarily invented in America.

The end game has always been whether the SEC would eventually accept the IASB as the standard setter for GAAP as it applies to all U.S. public companies. While the Commission did make an important concession several years ago to permit foreign companies to follow IFRS in their SEC registrations, I’ve always felt that for legal reasons the SEC would be unwilling to cede accounting standard setting authority to a foreign entity over which it had no direct control. The SEC has continued to hold out some hope that it could still recognize the IASB if a number of specific conditions were met, but I think the chances of that happening are between slim and none.

So, to respond more directly to your question, I see the current situation as pretty much the environment in which accounting standards will remain for the foreseeable future. The FASB will continue to participate in the IASB’s Accounting Standards Advisory Forum, which will allow the two Boards to communicate on projects for which they have joint interest. And I am sure they will share research findings and look to each other’s conclusions when working on similar projects. But from this point on I don’t think that either body will put eliminating differences with the other at the top of its priorities.

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