Two House republicans on Nov. 16, 2022, introduced legislation that would subject the FASB to new procedural checks and require the head of the accounting standard setter to testify annually before the House Financial Services Committee and Senate Banking Committee.
H.R. 9315, the Responsible Accounting Standards Act, is sponsored by Representative Blaine Luetkemeyer of Missouri and cosponsored by Representative Ted Budd of North Carolina.
The measure is unlikely to pass either in the current lame duck session or in the upcoming divided Congress. But its introduction – and the addition of a testimony requirement – suggests a GOP-run Financial Services Committee may turn its attentions to accounting standard setting in the next Congress. 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, is today the ranking member of the Subcommittee on Consumer Protection and Financial Institutions.
The Luetkemeyer bill was opposed in an earlier iteration by the AICPA when it was introduced three years ago. The accounting industry trade group at the time warned 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.)
A FASB spokesperson declined comment on the bill. The Financial Accounting Foundation (FAF), the parent organization of the FASB, also opposed the 2019 bill.
The latest version of the bill would amend the Securities Act of 1933 to require the FASB, when adopting an accounting principle, to follow procedures that are “as close as practicable” to the requirements of the Administrative Procedure Act (APA), a law that lays out broad guidelines for notice-and-comment and other requirements that agencies such as the SEC must follow when issuing new rules.
Also under the bill, the FASB would be required to carry out 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 measure, as well, would require the SEC chief accountant, in consultation with the FASB, to issue a report on implementation within three months after enactment.
“Accounting principles impact every single American business and their employees,” Luetkemeyer said in a statement. “FASB’s wide-ranging power should require commonsense oversight and analysis. This bill ensures the effects on the American economy are studied and considered in every standard FASB puts into place.”
FASB, on its website, explains how it already gathers information on and considers the cost and 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 November 21, 2022 edition of Accounting & Compliance Alert, available on Checkpoint.
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