A proposal to create a systemic risk
regulator to oversee Financial Accounting Standards Board (FASB)
standard-setting activities has been knocked on the head by the US
House Financial Services Committee, drawing sighs of relief from
the accounting profession.
The idea, which had been included in an
amendment to the nation’s Financial Stability Improvement Act (HR
3996), was introduced by Republican Congressman Ed Perlmutter. It
proposed to transfer the Securities and Exchange Commission’s (SEC)
oversight powers to a new regulator that could influence accounting
standards deemed a systemic risk.
Center for Audit Quality executive director
Cindy Fornelli welcomed the decision to remove the amendment.
“As a strong supporter of an independent
standard setting process, subject to public scrutiny and free of
undue pressures, the Center for Audit Quality is pleased that SEC
oversight of the FASB will remain intact,” Fornelli said.
The Perlmutter amendment had been vigorously
opposed by accountants and labelled a threat to the independence of
the FASB, which comes under the watchful but hands-off oversight of
the SEC. Independence in the US standard-setting process is largely
maintained as the SEC provides a barrier to political interference,
which is rare.
The SEC’s mandate to ensure investors’
interests are protected also ensures that accounting rules aren’t
altered to maintain stability in capital markets.
There had been fears that banking and other
prudential oversight bodies could influence accounting rules if the
Perlmutter amendment had found a passage into law.
Prior to the House Financial Services
Committee review, American Institute of Certified Public
Accountants chief executive Barry Melancon warned that banking
regulators exerting influence over accounting standards could lead
to a situation where rules were bent in order to ensure the safety
and soundness of financial institutions.
“Those agencies being contemplated to oversee
systemic risk do not have the same focus on the importance of the
US financial reporting system related to the setting of accounting
standards for public companies,” Melancon said.
“This will impair the quality of information
received by investors because factors other than the primary needs
of investors will be taken into account when the proposed board
oversees accounting standards.”