Monday, September 19, 2016

Banking group to SEC: Don’t defer to FASB

By Mark S. Nelson, J.D.

The American Bankers Association urged the Commission not to defer to the Financial Accounting Standards Board in a public comment it submitted on the Commission’s Disclosure Update and Simplification proposal. The letter was submitted by Michael Gullette, the ABA’s vice president of accounting and financial management. Comments on the proposal are due October 3.

Commission deferral to FASB. Overall, the ABA letter cited the lack of equivalent standards on industry-specific topics, costs, and the differing treatment of SEC registrants and non-registrant public business entities as reasons for the Commission to remain engaged in setting accounting disclosure requirements. But the letter observed that the FASB generally lacks targeted disclosures akin to the Commission’s Industry Guide 3 for bank holding companies. The letter also noted the forward-looking character of MD&A disclosures and the historical character of audited financials, while also spotlighting recent trends that could blur these distinctions.

Banking topics in proposal. The Commission first recognized the FASB’s U.S. GAAP standards as “authoritative” in the 1970s and, more recently, determined under revised criteria established by the Sarbanes-Oxley Act that the FASB is a private-sector accounting standards setter whose standards are “generally accepted.” The Commission monitors FASB’s work and Commission disclosure requirements are periodically incorporated into U.S. GAAP. The proposal’s aim is to determine whether the Commission should retain, modify, or eliminate some of its disclosure requirements, or whether the Commission should refer them to the FASB for inclusion in U.S. GAAP.

As a result, the Commission identified several areas for public comment, including two FASB projects, of which one would conclude that the omission of immaterial information from the notes to financial statements does not result in an accounting error. Still other proposals to eliminate redundant or overlapping Commission disclosure requirements could more directly impact banks:
  • Redundancies—The Commission proposed to delete some disclosure requirements. For bank holding companies, proposals regarding Rules 9-03 (balance sheets) and 9-04 (income statements) of Regulation S-X are of prime interest. 
  • Overlapping requirements—The proposal would delete some requirements that are reasonably similar to or are encompassed by U.S. GAAP, IFRS or other SEC requirements, or which are incremental to these standards or SEC requirements. Proposed revisions that may impact banks include: (i) repurchase and reverse repurchase agreements; and (ii) accounting policies for derivative financial and commodity instruments. 
  • Integrations—According to the proposal, the Commission could integrate some disclosure requirements that overlap with, but are incremental to, related Commission requirements. The proposal’s spotlight on foreign currency restrictions contained in Regulation S-X could be of interest to banks. 
  • Modifications and referrals—Another set of overlapping Commission rules could be modified, eliminated, or referred to the FASB because they overlap with, and are incremental to, U.S. GAAP. Topics highlighted by the proposal that may be of interest to banks include: (i) REITs; (ii) assets subject to lien; (iii) obligations and related cured/waived defaults, changes in obligations, or financing arrangements; and (iv) repurchase and reverse repurchase agreements.

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