Summary, Pages 2 (493 words)
The question arises, how much power and influence does the SEC have over the FASB pertaining to setting accounting standards? Do the SEC and FASB work together as believed by the authors of The Accounting Standards Setting Process in the U.S.: Examinations of the SEC-FASB Relationship ? Or is the FASB in complete control of the standard setting process?
The SEC has the legal responsibility to set accounting standards, but gave this duty to the FASB. According to the article a lot of what the FASB does is a reaction to the immense pressure being imposed by the SEC and the SEC not giving the FASB the freedom to set standards without its interference.
Because the SEC delegates this duty to the FASB the SEC is less criticized especially in the area of special interests. It is believed that the SEC has delegated the standard setting duty to the FASB to shift blame away from itself and pawn it on the FASB.
Evidence of the FASB working with the SEC to set standards has been obvious since the FASB’s establishment in 1973 where it is known that they discussed the development of new standards. Even if one were to believe the FASB and SEC did not work together, evidence still points in the direction of the FASB being aware of what the SEC wanted and setting standards to appease the SEC.
The views and opinions of the SEC’s chief accountants and members were given in speeches and the SEC publishes its accounting positions therefore the FASB knew what the SEC wanted in its standards.
Members and chief accountants from the SEC have also become members of the FASB’s advisory council and obtained other positions working with and for the FASB which shows behind closed doors the SEC and FASB were collaborating.
A study was completed examining 158 FASB Statements based on seven criteria to determine the extent of SEC involvement with the FASB. The criteria was based on whether the FASB’s position is similar to the SEC’s, if the SEC initiated the subject of the statement, threats made by the SEC, whether the FASB acted under pressure, was the rule changed to accommodate the SEC and did the SEC intervene or overturn the statement. Evidence to prove the criteria was found in speeches, issued discussion memorandum, Wall Street Journal articles, public hearings as well as, the SEC overturning statements and lending support to the FASB.
It may appear to some that the SEC has little involvement in the standards set by the FASB however this is not the case. The extensive research that was completed and compiled shows how the SEC plays an active role in the Standard setting process. The SEC has power over the FASB’s budget and potential members, and has the ability to put pressure to address specific issues and respond the way they see fit. Ultimately the FASB sets the standards but the SEC decides what standards are enacted.