A House Republican on December 12, 2023, reintroduced legislation requiring the chair of the FASB to testify annually before two Congressional committees and subjecting the accounting standard-setter to procedural checks that hew closely to the Administrative Procedure Act (APA).
Representative Blaine Luetkemeyer (R-MO) introduced H.R. 6726, the Responsible Accounting Standards Act, on the same day FASB Chair Richard Jones testified before the House Financial Services Committee’s Capital Markets subcommittee. Luetkemeyer, a vocal critic of the FASB’s current expected credit losses (CECL) standard in Accounting Standards Update (ASU) No. 2016-13, Topic 326, Financial Instruments – Credit Losses, has sought for years to advance the measure. FASB’s parent organization, the Financial Accounting Foundation (FAF), and AICPA had opposed an earlier version of the legislation, with the latter at the time warning that “subjecting FASB to political influence would threaten the independent accounting standard process.” (See AICPA Speaks out for Independent FASB Following GOP Bill in the February 10, 2020, edition of Accounting & Compliance Alert.)
Luetkemeyer, in a statement to Thomson Reuters, said his bill “would require FASB and its overseer, FAF, to consider the impact their accounting principles will have on the U.S. economy, market stability, and availability of credit – something FASB has admitted to me they did not consider while promulgating the Current Expected Credit Loss (CECL) standard.”
“This bill will not take away FASB’s independence, but it will force them to perform the due diligence they have proven unwilling to do,” he added.
A FASB spokesperson declined comment.
The Luetkemeyer bill, unchanged from the version filed in November 2022, would amend the Securities Act of 1933 to mandate the FASB follow procedures that are “as close as practicable” to the APA requirements for a federal agency when adopting new accounting principles. The APA sets out requirements for notice-and-comment and other procedures that agencies such as the SEC must follow when issuing new rules.
Among other requirements, the FASB would need to conduct a cost-benefit analysis for a significant regulatory action under the 1993 Executive Order 12866 “to the extent the requirements for such analysis relate to the efficient functioning of the economy and private markets, and the cost of businesses complying with the action.’’ The chair of the FASB would be required to testify each year before the House Financial Services Committee and Senate Banking Committee.
FASB’s website lays out how it gathers information on and considers cost-benefit of its standards.
“Throughout the stages of a project, the FASB’s procedures, which are called ‘due process,’ are specifically designed to generate feedback about costs and benefits of a proposed new standard,” the website states. “Stakeholders are asked about the most faithful way to portray a transaction or economic phenomenon, as well as the most cost-effective ways to implement any changes. Before being implemented, every proposal is exposed for public commentary and discussed with numerous informed stakeholders. Technical decisions by the Board are made in public meetings after careful consideration of the input from stakeholders.”
This article originally appeared in the December 14, 2023, edition of Accounting & Compliance Alert, available on Checkpoint.
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