One such proposal that could impact oversight of accounting standard setting is HR 1349, sponsored by Rep. Ed Perlmutter (D-CO). HR 1349 would amend the Securities Act of 1933 to remove the SEC's oversight role over FASB, and assign that oversight role instead to a Federal Accounting Oversight Board, consisting of the banking regulators, Chairman of the SEC and Chairman of the PCAOB.
As reported earlier this week, Rep. Perlmutter may offer an amendment on the Financial Stability Improvement Act (the bill relating to systemic risk regulation, to be reported as H.R. 3996) to incorporate language from HR 1349.
Following are additional points in the FEI CCR letter:
- Acting on such proposals to realign oversight of the Financial Accounting Standards Board (FASB), could change the objectives of financial reporting, harm U.S. capital formation, and potentially politicize the process of setting accounting standards.
- We respectfully request that accounting standards oversight should remain under the jurisdiction of the U.S. Securities and Exchange Commission, which is responsible for fair, objective, and transparent reporting for those who invest in our public companies.
- We urge you to reject any efforts to place accounting standard setting under a new oversight board and continue to support independent accounting standard setting in the United States.
SEC Chairman Mary L. Schapiro sent a letter to Rep. Frank and Rep. Bachus yesterday, reports Steve Burkholder of BNA, in his article entitled SEC Chief Schapiro Cautions Lawmakers on Proposals to Widen Oversight of FASB, Here are some highlights from Burkholder's article:
- The chairman of the Securities and Exchange Commission is warning key congressional lawmakers at work on financial regulatory reform that efforts to change oversight of accounting standard-setting could harm the capital markets by undercutting investors' trust in financial reporting and diluting the mission of the rulemakers.
- In sternly worded letters dated Nov. 5, Mary Schapiro wrote to the chairman and ranking minority member of the House Financial Services Committee to state that she is “deeply concerned about the possible consequences” of the potential changes.
- ‘‘It is critical that Congress preserve the independence” of bodies such as the Financial Accounting Standards Board, Schapiro wrote ...[adding]..."[W]hile active engagement and dialogue with a broad spectrum of interested parties improves accounting standards, diluting the mission of the standard-setters does not,” the SEC chairman continued. “Accounting should be about accounting, and not about anything else.”
As previously reported, other groups that have filed letters against formation of an FAOB include a joint letter of the Council of Institutional Investors, Center for Audit Quality, and U.S. Chamber of Commerce. See, e.g. CAQ Wants Congress to Preserve SEC Oversight of FASB (webcpa.com) . Here are some highlights from the CII/CAQ/Chamber letter:
- In adopting the Sarbanes-Oxley Act of 2002, Congress recognized the benefits of having
accounting standards set by an independent body and established a process for the establishment and oversight of financial reporting policy. In doing so, Congress designated the Securities and Exchange Commission (SEC) as the primary agency with oversight over accounting standard setting, given the important role accounting standards play in the Commission’s mission to protect investors, maintain fair, orderly and efficient markets, and facilitate capital formation.
- By placing the FASB under the jurisdiction of a structure charged with managing systemic risks to the financial markets, accounting rules will be viewed though the narrow lens of a few large companies from specific industries, rather than considerate of the applicability of financial reporting policies to over 15,000 public companies.
- Procedure, appropriate oversight and independence are important to ensure the legitimacy of the standards-setting process, and to protect the goals of transparency, relevance, and usefulness in financial reporting that are critical to the success of the U.S. capital markets.
Another point of view is held by the American Bankers Association, which shared its views on this matter within broader testimony at an Oct. 29 hearing of the House Financial Services Committee. Following are some highlights from ABA President Edward Yingling's testimony:
- A Systemic Risk Oversight Council could not possibly do its job if does not have oversight authority over accounting rulemaking. This is a major deficiency in the draft legislation.
- The Financial Accounting Standards Board (FASB) should continue to function as it does today, but it should no longer report only to the Securities and Exchange Commission (SEC). The SEC’s view is simply too narrow.
- Accounting policies contributed to the crisis, as has now been well documented, and yet the SEC is not charged with considering systemic and structural effects. Moving oversight to the systemic risk council, which includes the SEC, will address this problem.
- Accounting policy is arcane and difficult, but it was a critical factor in turning a bubble and a recession into a full-fledged panic. If Congress does not address this issue as part of reform, it will not have addressed one of the significant causes of the problems .
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