Sunday, March 23, 2014

House Oversight Chair Supports Legislation to Keep PCAOB Outside of Budget Sequestration

Subjecting the PCAOB and FASB to sequestration would jeopardize the independence of the accounting standards setting and auditing process and provide the Federal government with unintended and unprecedented control over these institutions, noted Rep. Michael Conaway (R-TX), Co-Chair of the Congressional Caucus on CPAs and Accountants. He added that this type of control is precisely what Congress sought to avoid when it made the PCAOB and FASB independent of the Federal budget process in the Sarbanes-Oxley Act. Rep. Conaway, who is also Chair of the House Commodities and Risk Management Subcommittee is supporting legislation, H.R. 4270, that would exempt the PCAOB from budget sequestration. In remarks on the House floor, Chairman Conaway said that high-quality accounting and independent audit oversight is critical to providing transparent, consistent, comparable, relevant, and reliable financial information to investors. Because of the complexity and the competing stakeholder interests associated with accounting standards, Congress has repeatedly determined that the establishment and enforcement of these standards should be managed by independent, private-sector organizations. Cong. Rec. March 16, 2014, p.E287. In order to insulate the PCAOB and FASB from coercion and to protect their independence, Congress authorized these organizations to collect fees as dedicated sources of funding in the Sarbanes-Oxley Act. These fees are not federal dollars, emphasized the Chair, who added that they never touch the Treasury or any other governmental entity, and are not subject to appropriation. In fact, Section 109(c)(1) of Sarbanes-Oxley specifically says that accounting support fees and other receipts of the PCAOBand FASB shall not be considered public monies of the United States. Importantly, neither the PCAOB nor FASB has any budget authority, or the ability to obligate and expend funds on behalf of the Federal government. Section 109(i) of Sarbanes-Oxley clarifies their independence further by stating that nothing in this section shall be construed to render either the PCAOB or FASB subject to procedures in Congress to authorize or appropriate public funds, or to prevent such organization from utilizing additional sources of revenue for its activities. Despite this clear Congressional intent to keep the PCAOB and FASB independent of the Federal budget process, the OMB included them both in the President’s Budget, making them subject to sequestration. Yet, because their revenues are not federal monies, sequestering their funds would have no impact on the Federal budget and would not reduce the deficit one dollar. In order to implement Congressional intent and maintain the independence of the accounting and auditing community, noted Chairman Conaway, Congress must exempt these private, non-profit organizations from the President’s Budget and clarify that these and other similarly situated entities are not subject to current or future sequestration. Rep. Conaway inserted into the RECORD a bipartisan letter signed by nine members of the Congressional Caucus on CPAs and Accountants that, while focusing on FASB, is equally applicable to the PCAOB and shows the bipartisan concern that protecting the independence of these organizations has. The letter notes that high-quality accounting standards are critical to providing transparent, consistent, comparable, relevant, and reliable financial information to investors. Because of the complexity and the competing stakeholder interests associated with accounting standards, Congress has repeatedly determined that the establishment of these standards should be managed by an independent, private-sector body. Congress statutorily authorized the SEC to designate FASB as the entity responsible for developing financial accounting and reporting standards for all nongovernmental, private-sector entities that issue financial statements in accordance with GAAP. Congress has determined that independent, private-sector funding sources are necessary in order for those entities to remain objective and unbiased. Therefore, Congress authorized the collection of fees as dedicated sources of funding to insulate FASB from coercion and to protect its independence.

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