SEC Advisory Panel Recommends Oversight of U.S. Accounting Rule Maker

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The regulator should form a committee to ensure independence of the FASB amid concerns over minimum tax, a group of investors and academia said

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Accountants and investors have expressed concern that the tax, which is set to go into effect in January as part of the Inflation Reduction Act, risks politicizing accounting rules, encouraging companies to distort their financial results. .

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In November 2021 roughly 260 accounting and tax experts told federal lawmakers not to tie the then-proposed tax to income metrics reported to investors. FASB President Richard Jones said last November that the organization could face political pressure to focus on increasing tax revenue rather than its stated mission to ensure that companies accurately inform investors.

The FASB declined to comment on the panel’s recommendation. SEC Chairman Gary Gensler said in remarks Wednesday that he welcomed the recommendation. Ahead of the committee’s vote on Wednesday, the SEC and its chief accountant’s office were “already focused on the lack of investor priorities and the slow pace of FASB standard setting for months,” said Paul Munter, the SEC’s acting chief accountant. “The commission will give careful consideration to the IAC’s recommendation as we explore ways to address those concerns,” he added.

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The new advisory group will look at ways to strengthen financial reporting in areas such as intangible assets, for example internally developed software, the investor advisory committee said. It will also look at improving FASB’s understanding of companies’ internal data structures.

The SEC has an indirect link with the FASB. In 1973, this made the FASB the accounting standard setter for public companies. SEC staff participate as formal observers in FASB’s advisory committee meetings and provide insights to help make rules but lack the voting power of full board members.

The new group, called the Advisory Committee on Accounting Modernization, will be a reboot of the kind of the SEC’s Advisory Committee on Reform of Financial Reporting, which was introduced in 2008 to make financial information more useful to investors, increase its representation on the FASB, and reform. was recommended. Design of accounting standards. The committee called off the meeting after its final report.

SEC advisors also suggested other considerations, for example requiring the FASB to study the costs of delaying rulemaking on topics that investors focus on most, such as intangible assets. The SEC Investor Advisory Committee said the FASB should include those costs in the cost-benefit analysis it conducts when drafting new accounting rules.

Investor groups have pushed for changes to the FASB to better serve investors. For example, the Alliance of Concerned Investors, a group of investment analysts, and Capital Group Company, an investment manager, have urged a regulatory review of the FASB’s standard-setting process.

“We’ve seen the FASB over the past decade focus on facilitation projects that primarily benefit issuers rather than investors,” said Colleen Honigsberg, professor of law at Stanford Law School and member of the Investor Advisory Committee. “These investors are asking the FASB to focus on critical accounting issues that will improve their ability to truly value a company.”

Mark.[email protected] . on Mark Maurer

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