Leaders of the American Institute of CPAs and the Center for Audit Quality registered strong objections to proposed legislation that would put banking regulators in control of U.S. accounting standards.

The two organizations are concerned about a proposal from Rep. Ed Perlmutter, D-Colo., that may be included in legislation setting up a systemic risk regulator for the financial sector. Perlmutter, who is a member of the House Financial Services Committee, has proposed the creation of an oversight council that would have the ability to change accounting standards in the event of a crisis removing oversight of the Financial Accounting Standards Board from the Securities and Exchange Commission. The amendment is part of the Financial Stability Improvement Act of 2009.

“Financial and auditing standards are for the benefit of investors so that they can get the information that they need so that they can make valid investment decisions,” said CAQ executive director Cindy Fornelli. “The SEC acts as an investor advocate and is the right oversight party for helping the FASB maintain independent standard setting. Having financial and banking regulators be part of that process and basically have veto power over the standards is really not a good model for our system. Particularly in this time of financial crisis, it is a bit ironic that we would be talking about watering down the process that’s designed to protect investors.”

 The CAQ recently wrote a letter in conjunction with the Council of Institutional Investors and the U.S. Chamber of Commerce to protest the Perlmutter amendment.

AICPA president and CEO Barry Melancon noted that banking regulators already have the ability to adjust capital requirements and the SEC can suspend accounting rules when needed.

“Regulators in the financial institution space can clearly address any change in reserve requirements or capital requirements,” he said. “The SEC has the ability to suspend accounting rules, even in situations that don’t rise to a crisis situation. This is almost a circumvention of the rule of due process in the accounting standard-setting process.”

He also pointed out that the amendment would go against SEC chair Mary Schapiro’s recent warning against interfering with the independence of the accounting standard-setting process.

“The quickest way to have a race to the bottom would be to inject politics into the standard-setting process,” said Fornelli.

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