Lower House Proposes New Accounting Oversight Board for Financial Markets

Ed Perlmutter, D-Col., and Frank Lucas, R-Okla., introduced H.R. 1349, which would create a new Federal Accounting Oversight Board (“Board” or “FAOB”)  to oversee the application of generally accepted accounting principles (“GAAP”) to the financial markets.

Under the bill, the Board will include five influential members of the federal regulatory community, the Chairman of the Federal Reserve Board, the Secretary of Treasury, the Chairman of the Securities and Exchange Commission (“SEC”), the Chairman of the Federal Deposit Insurance Corporation (“FDIC”), and the Chairman of the Public Company Accounting Oversight Board (“PCAOB”).  Currently only SEC plays a role in how GAAP applies to financial markets, the congressmen pointed out. The Board would approve the standards set by the independent Financial Accounting Standards Board (“FASB”).

According to Perlmutter, the Board fits into responsible regulatory reform because a broader group of individuals with a view of the greater economy should be in charge of applying GAAP.

“As we work to stabilize financial markets and rebuild the economy, we must look closely at the regulatory structure to see what is helping and what is making things worse,” said Perlmutter. “If someone is ill, you don’t want a doctor to look at just one symptom and prescribe a remedy that could make the patient worse. The doctor must consider the overall health of the patient, and that’s what this bill does.”

Rep. Lucas commented, “By establishing safeguards like this oversight board to monitor accounting practices within the financial system, we are striving to provide greater flexibility in an ever-changing economic environment.”

The basic features of the bill are as follows:

•      Creates a new oversight board, the FAOB comprised of the Federal Reserve, Treasury, the FDIC, and the SEC, to approve the standards set by the independent FASB. 

•      Instructs the FAOB to look beyond current accounting standards and balance sheets to consider broad national and international financial markets and economic conditions when applying GAAP. 

•    The FASB is an independent board with the authority to set GAAP.  The legislation does not change GAAP, but it creates an environment where FASB will have the tools and flexibility it needs to adjust GAAP for future economic conditions. The legislation provides for discretion in the regulatory community to consider the overall condition of the financial markets in applying GAAP so the principles are not applied in a way that exaggerates or multiplies cycles in the markets.

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