House Panel Eases Threat to FASB Independence

The House Financial Services Committee on Thursday removed language from an amendment to the proposed Financial Stability Improvement Act (FSIA) (H.R. 3996) that would have given a new systemic risk regulator power to oversee FASB standard-setting activities.

The original amendment, which was introduced by Rep. Ed Perlmutter, D-Colo., would have transferred the SEC’s accounting standards oversight authority to a proposed new regulator with a mandate to take an active role in accounting standards that it deemed could pose systemic risks.

The SEC has statutory authority to establish financial accounting and reporting standards for publicly held companies under the Securities Exchange Act of 1934. Historically, however, the SEC has supported FASB’s independence and relied on FASB and its predecessors in the private sector to set accounting standards.

The amendment passed Thursday acknowledged that the proposed systemic risk regulator that would be created under the bill would have the ability to comment, like other interested parties, on FASB standards-setting issues.

“The [Financial Accounting Foundation, the legal entity that oversees FASB] does not oppose the recently adopted Perlmutter amendment because it acknowledges the due process of the accounting standards process, which is the backbone of the FAF mission,” Neal McGarity, FAF’s director of communications said Friday. “The FAF recognizes and is respectful of the need for Congress to maintain and advance the safety and soundness of this country’s financial system.”

“We look forward to continuing this important policy discussion as H.R. 3996 moves through the legislative process,” McGarity said.

The AICPA, the Center for Audit Quality (CAQ) and many state CPA societies vigorously opposed earlier versions of the Perlmutter amendment as recently as Monday, when the Institute’s and the CAQ’s leaders held a joint press conference to highlight opposition to a legislative proposal that they said could put bank regulators in control of U.S. accounting standards and circumvent the key role of due process in standard setting.

Earlier in November, AICPA President and CEO Barry Melancon sent a letter to the leadership of the House Financial Services Committee to state that the Institute is “strongly opposed” to any legislation that would “undermine the independent accounting standard process as currently carried out by FASB.” Melancon noted that the SEC and FASB “have made great strides” to improve financial reporting, and that if Congress were to follow through on Perlmutter’s proposal, “it will be viewed by many as disregard for the interests of investors.”

The CAQ, the U.S. Chamber of Commerce and the Council of Institutional Investors expressed similar opposition to the idea of removing FASB from the SEC’s purview in a Nov. 2 joint letter to the House Financial Services Committee.

This week, Rep. Scott Garrett (R-N.J.) offered an amendment to the bill to conduct a study of FASB Statement nos. 166 and 167. The amendment, which was approved by the committee, would require FASB to conduct a study of the combined impact by each individual asset-backed security of the new credit risk retention requirements contained in the Financial Stability Improvement Act and the new securitization accounting rules (FASB Statement nos. 166 and 167). FASB would also be required to make statutory and regulatory recommendations for eliminating any negative impacts on the continued viability of the asset-backed securitization markets and on the availability of credit for new lending.

“The new securitization requirements in this legislation and the changes by FASB to the securitization accounting rules will undoubtedly impact both [the] U.S. financial sector and securitization—which provides substantial financing options to consumers and businesses,” Garrett said in prepared remarks.

FASB would have to complete the study in 90 days in collaboration with the Office of the Comptroller of the Currency, the Office of Thrift Supervision, the FDICand the SEC.

The House Financial Services Committee is still considering the entire FSIA bill and, according to one committee member’s spokesperson, plans to vote on the bill Dec. 2.

—Matthew G. Lamoreaux (mlamoreaux@aicpa.org) is a JofA senior editor.