March 6, 2009 / 6:54 PM / 8 years ago

U.S. bill would revamp accounting oversight

<p>Republican Frank Lucas of Oklahoma during a February 2009 hearing on Capitol Hill.Handout</p>

WASHINGTON (Reuters) - Two U.S. lawmakers have introduced legislation to create a new body that would have the final say on accounting standards, possibly paving the way for a more business-friendly accounting environment.

The Federal Accounting Oversight Board (FAOB) envisioned by the bill would not replace the Financial Accounting Standards Board but would approve the standards and determine how they should be applied.

The bill introduced late on Thursday by Democratic Representative Ed Perlmutter of Colorado and Republican Frank Lucas of Oklahoma was welcomed by a banking industry group but and drew criticism from an investor advocate.

Some U.S. banks and lawmakers have urged regulators to ease mark-to-market accounting rules that have triggered billions of dollars in writedowns and blamed by some for impeding the economic recovery effort.

But investors are concerned that relaxing accounting standards could lead to financial manipulation and less reliable information in company reports.

The new five-member board would include top regulators from the Federal Reserve, the Treasury, the Securities and Exchange Commission, the Federal Deposit Insurance Corp, and the Public Company Accounting Oversight Board.

"As we work to stabilize financial markets and rebuild the economy, we must look closely at the regulatory structure to see what is helping and what is making things worse," Perlmutter said.

The proposed legislation does not yet have a companion bill in the Senate.

The FAOB would oversee the application of Generally Accepted Accounting Principles (GAAP) to the financial markets and would consider how to adjust the application of the standards for different assets and different market conditions.

The American Bankers Association voiced support for the legislation, saying the financial crisis has escalated concerns over the narrow focus of the SEC and FASB's oversight for accounting standards.

"The current framework for accounting oversight, though well intentioned, has proved inadequate and must be fundamentally revised," ABA President Ed Yingling said in a statement.

But Barbara Roper, director of investor protection for the Consumer Federation of America, said allowing banks to continue to place inflated values on their assets would only delay the day of reckoning. "Pretty much everything about this bill is concerning," she told Reuters.

Mark-to-market, or fair value, accounting rules have forced banks to dramatically mark down the values of their assets as markets for mortgage-related securities have dried up, making them virtually worthless by accounting rules even though they are still producing revenue.

Some critics have urged the SEC and FASB to significantly alter or suspend the accounting rule, saying it is undermining the government's multibillion-dollar effort to stabilize the financial sector.

Proponents of mark-to-market accounting, which fully went into effect in November 2007, say the rules provide transparency and that abandoning the rules would only mask firms' weaknesses.

A House financial services subcommittee plans to hold a hearing on mark-to-market accounting on March 12. The SEC's chief accountant and the chairman of the FASB are expected to testify.

Reporting by Karey Wutkowski; Editing by Tim Dobbyn

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