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Accounting

Rep. Sherman, as Capital Markets Chair, Will Increase Accounting Focus

Thomson Reuters Tax & Accounting  

Thomson Reuters Tax & Accounting  

By Bill Flook

Rep. Brad Sherman, the new chairman of the House Financial Services Committee’s Capital Markets subcommittee, said he plans to turn greater focus onto accounting issues as chair of the influential panel.

In brief remarks during a December 11, 2019, House Financial Services Committee markup, the California Democrat said he looked forward to hearing ideas from other lawmakers, including top Republicans on the committee, on hearings to hold and witnesses to call, and added that he plans “to look a little bit more at accounting issues.”

Sherman, a CPA who was first elected to the House in 1996, is a frequent critic of the FASB’s credit loss standard set to go into effect next year for public companies. The standard, published in mid-2016 in Accounting Standards Update (ASU) No. 2016-13Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, is widely seen as the FASB’s most significant and far-reaching response to the 2008 financial crisis, addressing criticisms that banks were far too slow to recognize souring loans on their balance sheets.

Under the standard, banks and other financial entities will be required to forecast into the foreseeable future to predict losses over the life of a loan, and then immediately book those losses. Banks and banking industry trade groups have recently stepped up efforts to delay or scrub the standard, which they argue will force them to needlessly hold more capital and pull back on lending in a crisis, when borrowers most need the funds.

Sherman is among the most prominent CECL foes on the Democratic side. During a September committee hearing, he called the standard “an accounting theory travesty” and urged the SEC to intervene.

“It is a terrible proposal,” he said. “And it’s only defense is that its adoption will cause banks to have higher reserves than the bank regulators think they want to impose.”

Sherman, because he is a CPA, was invited to sit in on a December 2018 CECL hearing by the Financial Services Committee’s subcommittee on Consumer Protection and Financial Institutions. During the hearing, he said FASB needed to do more analysis of the credit loss standard before allowing it to move forward.

“We need to see FASB provide quantitative impact studies and field testing before they turn the economy or any sector of the economy on its head,” Sherman said.

The California Democrat was among 10 House lawmakers to sponsor a bipartisan bill that would require the FASB to delay implementation of its credit loss standard for a year while the SEC and other financial regulators study its impact. H.R. 3182, the CECL Consumer Impact and Study Bill of 2019, was introduced by Rep. Vicente Gonzalez, a Texas Democrat, in June.

A parallel measure, S. 1564, the Continued Encouragement for Consumer Lending Act, was introduced in the Senate last month by Sen. Thom Tillis, a Republican from North Carolina, alongside five GOP cosponsors.

During the December 11 markup session, the House Financial Services Committee officially cemented Sherman’s status as the new chair of the Subcommittee on Investor Protection, Entrepreneurship, and Capital Markets. He replaces Rep. Carolyn Maloney of New York, who left the role to take over the chair of the Oversight and Reform Committee following the death of its chairman, Rep. Elijah Cummings of Maryland.

 

This article originally appeared in the December 16, 2019 edition of Accounting & Compliance Alert, available on Checkpoint.

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