* Investors panel blasts political interference in FASB
* Asks that FASB be restored to seven members from five
* Says FASB's governance structure is "insufficient"
By Emily Chasan
NEW YORK, June 22 The independence of the U.S.
accounting rulemaking body has been tarnished by recent
political pressure over mark-to-market accounting changes,
according to a letter sent by an advisory panel of investors to
the Financial Accounting Foundation last week.
The group said the governance structure of the Financial
Accounting Standards Board has been "insufficient" in fighting
off pressure from special interests and politicians seeking
more flexibility for banks with toxic assets on their books,
and asked that the FASB board be restored to seven members from
its current five.
The letter was addressed to Financial Accounting Foundation
Chairman John Brennan, who oversees the accounting rulemakers
The panel, called the Investors Technical Advisory
Committee (ITAC), was set up by FASB to give investors'
perspectives on accounting rules.
Its members include 13 investment professionals from
suchorganizations as the Council of Institutional Investors and
the CFA Centre for Financial Market Integrity; a former
regulator; and analysts from Moody's Corp (MCO.N), Standard &
Poor's, Goldman Sachs & Co (GS.N), J.P. Morgan Securities
(JPM.N) and the California Public Employees' Retirement
Citing a congressional hearing in March over mark-to-market
accounting, the investor group said it had "grave concerns
about what we believe to be a substantial erosion in the
independence of the accounting standard setting process."
At the hearing, lawmakers told FASB Chairman Robert Herz to
deliver new guidance on mark-to-market accounting within three
weeks or face legislation changing the rule that had forced
banks to write down billions of dollars in assets.
FASB bowed to pressure from Congress and the financial
industry in early April by allowing banks more flexibility in
valuing toxic assets.
"LOSS OF TRUST"
The group questioned whether "weaknesses" in FASB's
structure and governance would undermine the quality of
accounting rules issued by the board in the future.
The Investors Technical Advisory Committee said in the
letter that it believes that poor transparency in accounting is
partly responsible for the lack of investor confidence during
the financial crisis and that FASB's inability "to assert its
independence in the face of onslaught" was "exacerbating" the
"Many investors responded negatively to the reduced quality
of information, as reflected in their investment decisions, but
that response cannot compensate for the loss of information
and, perhaps more importantly, the loss of trust and confidence
in financial reporting and accounting standard setting," the
To help FASB better fend off political attacks, the
advisory panel urged the Financial Accounting Foundation to
reverse changes made to its governance structure last year.
It asked that the five-member board be restored to seven
members, with the two additional members coming from investor
The group also said because of "very public threats and
intimidation" by Congress against FASB's chairman, another of
the recent changes -- giving the chairman sole authority over
what accounting projects end up on the board's agenda -- should
In February 2008, the foundation downsized FASB and
increased the chairman's power, saying the changes would help
U.S. and international accounting standards converge. But plans
to have U.S. companies switch to International Financial
Reporting Standards as soon as 2014 are now being reevaluated
by the U.S. Securities and Exchange Commission.
The investor advisory panel said in its letter that while
FASB's governance issues were troubling, the situation "appears
to be if anything even more dire outside the U.S." as the
London-based International Accounting Standards Board has also
faced threats from regulators and politicians abroad.
A FASB spokesman was not immediately available for comment
on the letter.
(Reporting by Emily Chasan; Editing by Gary Hill)