Standard setters and 'sovereignty'.

• Author: Orenstein, Edith
• Position: Washington insights

The tension between the concurrent goals of independence and accountability of accounting standard setters--including the Financial Accounting Standards Board and International Accounting Standards Board--has been an evergreen issue. Claims of perceived political pressure and other interference in the standard-setting process have risen during the recent economic crisis. However, some believe these actions are an appropriate exercise of oversight and necessary accountability, which provide fundamental checks and balances.

Accountable--To Whom?

In a policy statement issued in 2003, the U.S. Securities and Exchange Commission reaffirmed FASB's status as the designated private-sector accounting standard setter in the United States based on, among other things, FASB's continued adherence to its Rules of Procedure. These rules require the board to provide appropriate notice and comment for its proposals and to carefully weigh constituent views, including the expected benefits and perceived costs of each standard.

The policy statement also reiterated FASB as an independent body, subject to the oversight of the SEC. FASB oversight is also conducted indirectly by the U.S. Congress, particularly through the House Financial Services Committee--as evidenced by that committee's March hearing, during which FASB and the SEC were "requested" to issue additional guidance on fair value in inactive markets and other-than-temporary-impairment. That request was fulfilled in time for the Group of Twenty Finance Ministers meeting in early April.

The Senate Banking Committee also takes an interest in accounting standards, as evidenced by hearings conducted in 2007 on the SEC's then-pending (and since adopted) decision to accept from foreign filers, financial statements prepared in accordance with International Financial Reporting Standards issued by IASB, without reconciliation to U.S. generally accepted accounting principles.

Late last year, the SEC released its Proposed Roadmap for the Potential Use of Financial Statements Prepared in Accordance with International Financial Reporting Standards by U.S. Issuers, setting forth various milestones which, if met, could potentially lead to the SEC mandating U.S. companies to change from filing in U.S. GAAP to IFRS. Among the milestones is an evaluation of oversight of IASB and its parent body, the International Accounting Standards Committee Foundation, including the oversight conducted by IASCF's new Monitoring Board...