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Democrats’ Disclosure, Governance Priorities Thwarted in Coronavirus Relief Package,

Thomson Reuters Tax & Accounting  

Thomson Reuters Tax & Accounting  

By Bill Flook

House Financial Services Committee Chair Maxine Waters on March 27, 2020, called for a fourth COVID-19 relief package to address the shortcomings in the Coronavirus Aid, Relief and Economic Security (CARES) Act.

Many of the panel’s priorities were thwarted in the bill, which the California Democrat nevertheless supported, framing it as “the most consequential piece of legislation that many of us will ever vote on.”

“I must make it clear that this legislation is far from comprehensive, and there are issues that it leaves unaddressed and areas where it falls short,” she said in floor remarks, pointing out the absence of provisions forgiving student loan debt or barring negative credit reporting, among other problems.

Waters remarks came hours before the House passed the relief package by voice vote. The Senate approved the measure late on March 25 on a 96-0 vote.

Waters had championed an alternative relief package, the Financial Protections and Assistance for America’s Consumers, States, Businesses, and Vulnerable Populations Act, which would have – in addition to providing financial assistance that included a $2,000-per-month stipend for most adults – put in place a series of new public disclosure and corporate governance requirements to accompany the aid. (See House COVID-19 Package Would Expand Corporate Disclosures in the March 25, 2020, edition of Accounting & Compliance Alert.)

The House measure would have required public companies to add new disclosures in their annual reports related to supply chain disruption risk and related contingency plans; make new disclosures related to how their business is exposed to global pandemics “including risks to health and worker safety faced by the issuer’s employees and independent contractors;” and require employees of companies receiving federal aid related to COVID-19 to elect at least on third of the board of directors in a “one-employee-one-vote” election process.

The SEC, under the Democratic stimulus measure, would have been directed to issue regulatory guidance related to challenges associated with pandemics and major disasters.

House Democrats had also slipped some other long-standing disclosure priorities into their COVID-19 relief bill. Among the conditions for receiving federal aid under the bill, certain companies that are traded on national exchanges would be required to make new disclosures on political spending, human capital management, and other environmental, social, and governance disclosures, all longtime Democratic aims.

Republican critics had accused House Democrats of bogging down what was supposed to be a targeted Coronavirus relief package with a grab-bag of unrelated bills.

“We have some folks that tried to leverage, a lot of Democrat leaders tried to leverage, really bad ideas into the bill over the last five days, which I think is bad for America,” Patrick McHenry of North Carolina, the ranking Republican on the House Financial Services Committee, said in an interview with Fox Business.

In one point of harmony between the CARES Act and the House bill, companies receiving aid would be forbidden from conducting stock buybacks. (See Pelosi Touts Buyback Ban in Coronavirus Relief Package Despite Activist Gripes in the March 27, 2020, edition of Accounting & Compliance Alert.)

The CARES Act also contains a provision that would free banks from complying with the FASB’s loan loss rules either until December 31, or until the health emergency is over, whichever comes sooner. Some Democrats, as well as Republicans, have been seeking to delay the standard’s implementation.

Critics of the FASB’s 2016 standard in Accounting Standards Update (ASU) No. 2016-13Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, warn the changes will force banks to needlessly hold more capital and pull back on lending in a crisis, when borrowers most need the funds.

(See Delaying New Credit Loss Accounting Rule Remains Part of Coronavirus Stimulus Package, Senator Crapo Says in the March 26, 2020, edition of Accounting & Compliance Alert.)

For in-depth analysis of the FASB’s guidance for credit losses, please see Catalyst: US GAAP—Financial Instruments-Impairment, also on Checkpoint.

Additional analysis of the credit loss standard can be found at Accounting and Auditing Update Service[AAUS] No. 2016-29 and SEC Accounting and Reporting Update Service[SARU] No. 2016-34 (July 2016): Special Report: Accounting for Credit Losses on Certain Financial Assets—An Explanation and Analysis of Accounting Standards Update No. 2016-13.

 

This article originally appeared in the March 30, 2020 edition of Accounting & Compliance Alert, available on Checkpoint.

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