NEWS RELEASE 03/19/02
FASB Chairman Comments on Proposed LegislationNorwalk, CT, March 19, 2002—In commenting on two bills recently introduced in Congress that include provisions concerning the Financial Accounting Standards Board ("FASB"), Edmund L. Jenkins, Chairman of the FASB stated, "The commitment to the FASB’s independence and open due process that is expressed in the two bills is very important as we address issues related to the Enron matter."
"We appreciate the commitment to supporting and strengthening the FASB’s independence embodied in the proposed legislation," Mr. Jenkins added, "but we caution Congress that any legislation mandating particular actions or procedures by the FASB can compromise the very independence that the legislation seeks to enhance."
"The Investor Confidence in Public Accounting Act of 2002," introduced on March 7, 2002, by Senators Christopher J. Dodd (D-Connecticut) and Jon Corzine (D-New Jersey) (the "Investor Act") would require that the Securities and Exchange Commission ("SEC") recognize generally accepted accounting principles established by the FASB if certain qualifications are met. Those qualifications include that the FASB be funded solely by "fees and charges assessed against each issuer" and "by revenues collected from the sale of materials and publications produced by that body." It also would require that the FASB submit an annual report to Congress and other parties.
"The Truth and Accountability in Accounting Act of 2002," introduced on March 14, 2002, by Representatives John D. Dingell (D-Michigan), Edolphus Towns (D-New York) and Edward J. Markey (D-Massachusetts) (the "Accounting Act") would require that the SEC annually conduct a review of "unresolved accounting standards issues" and issue a report to Congress and the FASB describing those issues. It also would require that the FASB submit to the SEC and Congress a response to the SEC report.
In further responding to the Investor Act and the Accounting Act, Mr. Jenkins stated, "We appreciate the sponsors’ support of, and commitment to, private-sector accounting standard setting. And, while we are confident that the FASB’s current funding structure has not impaired our independence, we do support the Investor Act’s provisions creating a fee-based source of funding for the FASB."
Despite general support of a fee-based source of funding, Mr. Jenkins cautioned that "to accept government-collected fees as a replacement of the current private-sector contributions to the not-for-profit Financial Accounting Foundation that has historically funded the FASB, such fee-based funding must be free of substantive conditions, adequate in amount, and not subject to the type of Congressional or executive branch review that invites interference with the technical decisions and independence of the FASB."
As to the other provisions of the bills, Mr. Jenkins cautioned, "Even limited and well-intentioned provisions like those contained in the Investor Act and the Accounting Act could compromise the independence of the FASB and the transparency of information that investors receive. The greater the involvement of Congress and the executive branch in the activities of the FASB, the greater the potential for harmful political pressures on the standard-setting process. As shown in the past, those pressures inhibit objective, neutral and timely resolution of important financial reporting issues. Resolution of accounting issues in an independent manner is essential to maintaining and enhancing the highest quality accounting standards in the world."
"The standards developed by the FASB over the past quarter century have provided the backbone for our nation’s vibrant capital markets because of the transparent, credible and reliable nature of the information that results from their proper application," Mr. Jenkins stated. "Impairment of the FASB’s independence by legislation could have a negative impact upon the quality of that information and, consequently, the longstanding competitive advantage of the U.S. capital markets."
"We look forward to working with Senators Dodd and Corzine, Representatives Dingell, Towns and Markey, and others to ensure that the FASB continues to efficiently and effectively fulfill its mission of establishing and improving accounting standards that, when followed, result in the transparent, credible and reliable information needed by today’s investors."
About the Financial Accounting Standards Board (FASB)
Since 1973, the FASB has been the designated organization in the private sector for establishing standards of financial accounting and reporting. Those standards govern the preparation of financial reports and are officially recognized as authoritative by the Securities and Exchange Commission and the American Institute of Certified Public Accountants. Such standards are essential to the efficient functioning of the economy because investors, creditors, auditors and others rely on credible, transparent and comparable financial information. For more information about the FASB, visit our website at www.fasb.org.
The Financial Accounting Standards Board
Serving the investing public through transparent information resulting from high-quality financial reporting standards developed in an independent, private-sector, open due process.