The dispute between the American Bankers Association and the Financial Accounting Standards Board heated up as ABA president Edward Yingling called for a new accounting oversight board that would hold sway over FASB.

In testimony before the House Financial Services Committee on Tuesday, Yingling criticized the Securities and Exchange Commission's existing oversight of FASB and said a new oversight board was needed. FASB spokesman Neal McGarity declined to comment.

The ABA has been pressuring FASB to loosen fair value and mark-to-market accounting standards, and the SEC has begun a study of the standards mandated by the Emergency Economic Stabilization Act. Last week, Yingling wrote to SEC Chairman Christopher Cox asking him to override FASB's recent guidance on fair value accounting (see Bankers Ask SEC to Overrule FASB on Fair Value).

At a congressional hearing on restructuring the financial regulatory system, Yingling went further. "Today, as a practical matter, accounting standards are made with little accountability to anyone outside the Financial Accounting Standards Board," he said. "That was by design. If there is accountability, there can be influence. Accounting policy was designed to be made by accounting experts, without the perils of outside influence. The SEC has long been authorized to prescribe accounting rules for public companies, but, as the law expressly permits, it has delegated rulemaking to a standard-setting body."

Yingling gave a back-handed compliment to FASB for at least listening to his group's concerns, but faulted the board for not following formal procedures to ensure transparency or making sure that benefits outweigh the costs. He also questioned how good a job the SEC was doing at overseeing FASB.

"Now that it has become apparent that accounting rules can have deep economic and systemic effects, Congress should consider whether that authority properly rests within the SEC," he said. "Accounting policy can no longer be divorced from its impact; the results on the economy and on the financial system must be considered."

The ABA is calling on Congress to establish an accounting oversight board, headed by the chairman of an overall "systemic oversight regulator" for the entire financial system. The SEC chairman might sit on such a board, Yingling suggested, along with other regulators and a Treasury Department representative. The oversight board would delegate basic rulemaking to an organization like FASB.

"This board could still delegate the basic standard-setting to an independent private-sector body, but the oversight process would be more formal, transparent and robust," said Yingling. "Since there is a movement toward convergence of accounting rules internationally, this oversight board would be charged with overseeing international coordination, as well."

FASB and its international counterpart, the International Accounting Standards Board, are making progress on convergence, while developing a coordinated response to the global financial crisis. Last week, the two groups announced the creation of a global advisory group to review financial reporting issues related to the credit crisis (see Accounting Boards to Create Credit Crisis Group).

On Monday, they announced further steps, including public roundtables in Asia, Europe and North America to gather input on reporting issues, and their intention to develop both short- and long-term solutions for these reporting issues.

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