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November 26, 2009

Relief as US government rejects oversight proposal for FASB

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.”

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