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

An advisory panel to the Securities and Exchange Commission said the regulator should tighten its oversight of the body that sets accounting rules for companies and nonprofits in the U.S. amid concerns from investors about its independence and priorities.

The SEC’s Investor Advisory Committee, a group of investors, academics and financial advisers, recommended setting up another advisory committee to ensure the Financial Accounting Standards Board remains politically independent. The proposal comes in the wake of a new corporate minimum tax, which will increase levies on large businesses that pay less than 15% tax on their book or financial-statement income.

Accountants and investors have expressed concerns 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.

Roughly 260 accounting and tax experts in November 2021 asked federal lawmakers to not tie the then-proposed tax to income metrics reported to investors. FASB Chair

Richard Jones

last November said the organization could face political pressure to focus on raising tax revenue instead of its stated mission of ensuring that companies accurately inform investors.

The FASB declined to comment on the panel’s recommendation. SEC Chairman

Gary Gensler,

in remarks Wednesday, said he welcomed the recommendation. Before the committee’s vote on Wednesday, the SEC and its office of the chief accountant were “already focused on the lack of investor priorities and slow pace of FASB standard setting for months,” said

Paul Munter,

acting chief accountant of the SEC. “The Commission will give the IAC recommendation careful consideration as we look for ways to address those concerns,” he said.

The new advisory group would consider ways to strengthen financial reporting in areas such as intangible assets, for example internally developed software, the Investor Advisory Committee said. It would also look to improve the FASB’s grasp of companies’ internal data frameworks.

The SEC has an indirect affiliation with the FASB. In 1973, it made the FASB the accounting standard setter for public companies. SEC staff attend the FASB’s advisory committee meetings as formal observers and provide insight to help with rule making but lack the voting power of full board members.

The new group, dubbed the Advisory Committee on Accounting Modernization, would be a reboot of sorts of the SEC’s advisory committee on improvements to financial reporting, which in 2008 recommended making financial information more useful to investors, increasing their representation on the FASB, and improving the design of accounting standards. The committee ceased meeting after its final report.

The SEC advisers also suggested other ideas, for example requiring the FASB to study the costs of delays to rule making on topics that investors are most focused on, such as intangible assets. The FASB should then factor those costs into the cost-benefit analysis it conducts when drawing up new accounting rules, the SEC Investor Advisory Committee said.

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 Cos., an investment manager, have urged a regulatory review of the FASB’s standard-setting process.

“We’ve seen investors note that over the past decade FASB has focused on simplification projects that primarily benefit issuers rather than investors,” said

Colleen Honigsberg,

professor of law at Stanford Law School and a member of the Investor Advisory Committee. “These investors have been asking FASB to focus on significant accounting issues that would actually really improve their ability to value a company.”

Write to Mark Maurer at [email protected]

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