The Standard-Setting Process. GASB establishes standards of accounting and financial reporting for U.S. state and local governments. Statement of the Honorable Ray Garrett, Jr., SEC Chairman, before the Senate Committee on Banking, Housing and Urban Affairs, on disclosure by banks and bank holding companies in connection with the public distribution of their securities. An example of the fundamental changes that have taken place in how financial information is reported is the FASB's project on measuring financial instruments at fair value. Since the 1930s, the SEC has delegated its authority for standards setting pretty much to the private sector. But like a lot of accounting and audit regulatory and enforcement activity at Jay Clayton’s SEC, this effort was inconsistent and scattershot. This trend has been accelerated by the European Commission's proposed regulation that would generally require all listed EU companies to apply international accounting standards for their 2005 consolidated financial statements. Enables investors, creditors, and the market to evaluate an entity; Increases confidence in the fairness of our markets; and. Registering and regulating the business of stock-brokers, sub-brokers, share transfer agents, merchant bankers and managers of issues, trustee of trust deeds, registrar of an issue, underwriters, portfolio managers, investment advisers and other intermediaries in the securities … Recently, the FASB completed the first phase of its project on business combinations, which eliminated pooling-of-interests accounting, enhanced disclosure requirements relating to goodwill and intangible assets and moved towards international convergence. Furthermore, it has fundamentally moved the paradigm for the financial reporting of financial instruments away from historical cost. The Securities and Exchange Commission (SEC) consistently has supported convergence of global accounting standards. The FAF also has changed the FASB voting process to require a simple majority vote for the issuance of an accounting standard. The SEC is on the front line of financial reporting and often is among the first to identify emerging issues and areas of accounting that need attention. All Rights Reserved, courtesy New York Stock Exchange Archives), (Roderick Hills Papers, Courtesy of the Gerald R. Ford Library), (Courtesy of Robert J. Sack and Darden School, University of Virginia), (Arthur F. Burns Papers, Courtesy of the Gerald R. Ford Library), (Harvey L. Pitt SEC Brief Collection, courtesy of Fried Frank Harris Shriver & Jacobson LLP), (Courtesy of the American Institute of Certified Public Accountants), (Courtesy of the estate of John R. Evans), (AICPA Collection, University of Mississippi), (prepared for the museum by David S. Ruder), (prepared for the museum by Harvey L. Pitt), (prepared for the museum by Roderick M. Hills), (with permission of The George Washington University Law School), (Courtesy of the Financial Accounting Foundation Library), (Courtesy of the Academy of Accounting Historians, University of Mississippi), Accounting Principles Board: Organization, Financial Accounting Standards Board: Organization, Financial Accounting Standards Board: Operation, January 28, 1994 Letter from Malcolm S. Forbes, Jr., to Dennis Beresford, Financial Accounting Standards Board, Memo from JT Ball to Marshall Armstrong, Financial Accounting Standards Board with notes on January 5th meeting with SEC, "The Legal Liability of the Accountant" - Address by SEC Commissioner A. Note: In the first panel, the striated line indicates the SEC’s oversight role over accounting standards promulgated by the FASB. As a result, the Commission expects to soon make a proposal for a different system. The Securities Act of 1933 and the Securities Exchange … The SEC has oversight responsibility over FASB and PCAOB. issues encountered in adopting the new lease standards. The Securities and Exchange Commission works to oversee corporate takeovers and to protect investors in the United States. This project, which has been broken down into discrete pieces, has resulted in several standards concerning measurement and disclosure of financial instruments. Now I would like to discuss more fully the importance of transparent financial reporting to our capital markets. Another example of an improvement is SFAS No. While these pre-clearance questions usually relate to single transactions, trends tend to develop surrounding certain issues. We applaud the FASB and the FAF for their efforts. In a September 21 speech, SEC Deputy Chief Accountant Sagar Teotia shared several observations regarding implementation of the new GAAP standards in the areas of revenue recognition, leases and credit losses.The Ticker has previously reported on the need for companies to prepare for timely implementation of the new revenue recognition standard, and on auditors’ focus on related … All previous US GAAP standards issued by a standard setter were superseded, and all other accounting literature not included in the Codification is considered non-authoritative. He also will be responsible for helping the Commission oversee both the Financial Accounting Standards Board and the Public Company Accounting Oversight Board. 1101 Pennsylvania Avenue NW, Suite 300, Washington, D.C. 20004 • P 202-756-5015 Lately, however, concerns have arisen that the FASB is not being as responsive as it should be. The Chairman of SEC assured of its continuance to oversee the private sector in establishing accounting standards. Instead of issuing standards itself, the SEC is primarily concerned with enforcing accounting and auditing standards in the context of financial statements it receives from public companies under the federal securities laws. A. Sommer, Jr. at the SEC Accounting and Financial Reporting Institute, "Improving Financial Disclosure to Investors," Speech by Ray Garrett, Jr. to American Institute of Certified Public Accountants, "A Neglected Dimension of Financial Reporting," Address by SEC Commissioner A.A. Sommer, Jr. to the Cleveland Treasurers Club, Response to the White Paper Questionnaire concerning "Recommendations and Comments on Financial Reporting to Shareholders and Related Matters", SEC release on disclosure of inventory profits reflected in income in periods of rising prices, "The Four Musts of Financial Reporting," Address by SEC Commissioner A. as well as an overview of the Financial Accounting Standards Board’s (FASB) goals and mission. (FASB: 30 Years of Setting the Standard) With regard to the role of the FASB he expressed that the SEC is committed to ensure the independence of FASB. The SEC had launched the most searching investigation ever conducted by a government organization into an independent audit and the practices of the audit profession in general, and in December 1940, issued its report in Accounting Series Release No. "The Richard C. Adkerson Gallery on the SEC Role in Accounting Standards Setting." Some of the guidance that has been issued has raised questions about the quality of earnings because certain fair value measurements have been estimated using models, and objective inputs to the model are not available. -3- I. The primary private sector standard setter is the FASB, which was established in 1972. This oversight is not presently, nor is it contemplated to be, under the umbrella of the FASB. So if you Then,Provide an overview of the role of the U.S. Securities and Exchange Commission (SEC) and it oversight responsibilities as related to the Public Company Accounting Oversight Board (PCAOB), the Sarbanes-Oxley Act of 2002, and the Dodd-Frank Act. However, the accounting profession would soon reel from the discovery of the 1938 McKesson-Robbins fraud. We have been working with the FASB to change its style to be more principle-based. The FASB took up this project, which was very controversial at the time, and promulgated a standard that not only improved financial reporting by requiring companies to account for their non-pension postretirement benefits on an accrual rather than a cash basis, but also served to increase corporate awareness of the underlying economics surrounding such postretirement benefits. In this manner, timely and appropriate guidance can be provided to preparers and auditors before inappropriate practices become ingrained. In order to achieve convergence in the short-term, however, the FASB and the IASB have to work together more closely than they have to date. The FASB periodically amends the Codification through Accounting Standards Updates. Transparency in financial reporting - that is, the extent to which financial information about a company is visible and understandable to investors and other market participants - is central to meeting this goal. (Courtesy of the estate of John R. Evans; made possible through a gift from Quinton F. Seamons), With Stephen A. Zeff A. Sommer, Jr. to the Financial Executives Institute, Case Studies for Trueblood Seminar for Professors, Letter from Arthur F. Burns, Federal Reserve to SEC Chairman Roderick M. Hills on Regulation S-X, Letter and memo from Walter E. Hanson, Peat Marwick Mitchell & Co., to SEC Chairman Roderick M. Hills on improper payments, Letter from SEC Chairman Roderick M. Hills to Federal Reserve Chairman Arthur F. Burns on SEC proposed amendment to Regulation S-X, John C. Burton - "Conflicts and Compromises in Financial Reporting", Petition of Arthur Andersen and Co. before the Securities and Exchange Commission, Arthur Andersen & Co. v. SEC: Memorandum of the SEC in Opposition to Plaintiff's Motion, Financial Accounting Foundation and Financial Accounting Standards Board Statement of Position in Accounting Series Release No. Second, the PAB would be an organization that is dominated by members that are unaffiliated with the accounting profession. The Office of the Chief Accountant, which establishes and enforces accounting and auditing policies set by the SEC. The PCAOB seeks to establish and maintain high quality auditing and related professional practice standards for audits of public companies and other issuers, and broker-dealers in support of the PCAOB mission to protect investors and further the public interest in the preparation of informative, accurate, and independent audit reports. The Financial Accounting Standards Board (FASB) is a private, non-profit organization standard-setting body whose primary purpose is to establish and improve Generally Accepted Accounting Principles (GAAP) within the United States in the public's interest. The EITF has 10-15 members (13 in 2012), chaired by a non-voting FASB appointee (in 2012 the FASB’s Technical Director). Answer 10: The SEC has congressional authority form the original security's act of 1933 & 1934 to establish accounting and auditing standards for publicly traded companies. Does the SEC have legal authority to prescribe accounting standards … The Codification is a structural overhaul from a chronological standards-based model (with thousands of individual standards, including 168 FASB Statements) to a topically-based model (with roughly 90 topics). These standards will serve as a test of the level of specificity needed to strike a balance between rules and principles. Previously, a supermajority of the seven-member board was required. The SEC has a unique position in the financial reporting process. Wallman on the Advisory Committee on the Capital Formation and Regulatory Processes, Letter from Michael A. Conway, KPMG Peat Marwick LLP to SEC Commissioner Steven M.H. The SEC is on the front line of financial reporting and often is among the first to identify emerging issues and areas of accounting that need attention. (Courtesy of the Academy of Accounting Historians, University of Mississippi), Presenter(s): Robert Herz, Joseph Ucuzoglu, Presenter(s): Dennis Beresford, Edmund Jenkins, A. Clarence Sampson, Presenter(s): Philip Ameen, Teresa Iannaconi. SEC Chair states that high-quality, globally accepted accounting standards are a "U.S. The SEC told the company not to disclose the metric in future filings. Lastly, the source of funding of the PAB is one that must be secure and independent.