UPDATE 1-U.S. accounting rule making board to be downsized

(Recasts, adds background throughout, details about changes to FAF, GASB, byline)

By Emily Chasan

NEW YORK, Feb 26 (Reuters) - The Financial Accounting Standards Board (FASB), which sets U.S. accounting rules, will have two fewer members and the power of its chairman will be increased, the board's overseeing body said on Tuesday.

The FASB will be cut to five members from seven, effective July 1, and the board's chairman will have agenda-setting authority. The Financial Accounting Foundation (FAF) trustees voted to approve the change on Tuesday.

The foundation first proposed the changes in December as a way to increase the efficiency of the board, but critics blasted the plan, saying it would reduce the board's ability to meet with constituents and make it less nimble.

Under the changes, the FASB's current chairman, Robert Herz, would be able to set project plans and the priority of new projects after "appropriate consultation" the foundation said.

"In this environment, it's important for the FAF and the FASB to speak with a strong and active voice on issues that affect accounting," Robert Denham, the chairman of the foundation, told reporters after the vote.

The decision to change the board's structure comes as it is about to face three vacancies. Michael Crooch has said he would like to step down, while the terms of members Donald Young and George Batavick are expiring.

The trustees had been concerned that training three new members would slow down plans to converge U.S. and international accounting standards, FAF trustee Timothy Flynn, who is also chairman of accounting firm KPMG International [KPMG.UL] said on Tuesday.

The FAF is responsible for setting the FASB's budget, selecting members of the board and overseeing its operations.

In additional changes, the FAF itself, will change its size from a fixed 16 trustees, to a flexible range of 14 to 18 trustees and increase the term of the trustees to five years.

Currently, FAF trustees serve one three-year term and have the option to serve a second term.

The FAF, which also oversees the Government Accounting Standards Board (GASB), voted to create a stable and permanent funding source for the group, which sets accounting standards for state and local governments, and give the GASB chairman the same agenda-setting authority as the FASB chairman. (Reporting by Emily Chasan; Editing by Tim Dobbyn/Andre Grenon)