A Securities and Exchange Commission advisory group says the regulator should strengthen its oversight of the body that sets accounting rules for U.S. businesses and nonprofits amid investor concerns about its independence and its priorities.
The SEC’s Investor Advisory Committee, a group of investors, academics and financial advisers, has recommended the creation of another advisory committee to ensure that the Financial Accounting Standards Board remains politically independent. The proposal follows a new minimum corporate tax, which will increase levies on large companies that pay less than 15% tax on their accounting or financial income.
Accountants and investors have expressed concern that the tax, which is due to come into force in January as part of the Cut Inflation Act, risks politicizing accounting rules, encouraging companies to distort their financial results.
In November 2021, about 260 accounting and tax experts called on federal lawmakers not to tie the then-proposed tax to income measures reported to investors. FASB Chairman Richard Jones said last November that the organization could face political pressure to focus on raising tax revenue instead of its stated mission of ensuring companies accurately report Investors.
The FASB declined to comment on the panel’s recommendation. SEC Chairman Gary Gensler, in his remarks Wednesday, said he welcomed the recommendation. Ahead of 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 the FASB’s slow normalization for months,” said Paul Munter, the SEC’s acting chief accountant. DRY. “The Commission will carefully consider the IAC’s recommendation as we seek ways to address these concerns,” he said.
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 board said. It would also seek to improve the FASB’s understanding of companies’ internal data frameworks.
The SEC has an indirect affiliation with the FASB. In 1973, he made the FASB the accounting standard setter for public companies. SEC staff attend FASB Advisory Committee meetings as official observers and provide information to assist in rulemaking, but do not have voting board member rights.
The new group, dubbed the Accounting Modernization Advisory Committee, would be a kind of reboot of the SEC’s Advisory Committee on Improving Financial Reporting, which in 2008 recommended making financial reporting more useful to investors. , increase their representation in the FASB and improve the design of accounting standards. The committee ceased to meet after its final report.
SEC advisers have also suggested other ideas, such as requiring the FASB to study the costs of delays in developing rules on the topics investors are most focused on, such as intangibles. The FASB should then factor those costs into the cost-benefit analysis it conducts when developing new accounting rules, the SEC’s Investor Advisory Committee said.
Investor groups have been pushing 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 called for a regulatory review of the FASB standard-setting process.
“We’ve seen investors note that over the past decade the FASB has focused on simplification projects that primarily benefit issuers rather than investors,” said Stanford law professor Colleen Honigsberg. Law School and member of the Investor Advisory Board. “These investors asked the FASB to focus on material accounting issues that would actually improve their ability to value a business.”
Write to Mark Maurer at [email protected]
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