International Finance and Accounting Handbook

(avery) #1

tackle complex existing or new issues arising in the accounting industry. SEC and
AICPA representatives attend its meetings as observers. In fact, the SEC’s chief Ac-
countant is a regular observer with privilege of the floor. The SEC’s Chief Accoun-
tant has stated that the Commission will challenge accounting that differs from a con-
sensus position adopted by the EITF. Issues before the EITF are resolved by
consensus of the members of the task force. A consensus is considered to exist if no
more than two of the 13 voting members object to a proposed solution. If no con-
sensus exists, the Chief Accountant is left to implement his or her own views. Prior
to 1988, EITF consensuses were not published. However, in 1988, FASB began pub-
lishing the highly condensed summaries of the issues and their resolutions. These
summaries are provided as a public service because the outcome of the EITF meet-
ings are not necessarily the opinion of the majority of the board. However, these con-
sensuses may be followed with respect to SEC filings as long as the Office of the
Chief Accountant does not have a serious objection to the consensus.
While the FASB is currently the sole entity to which the SEC looks for U.S.
GAAP accounting standards, there is no statutory requirement that this remain the
case. As indicated earlier in this section, the FASB is a successor to two former enti-
ties upon which the SEC relied for accounting standards. At the time of writing, and
especially with respect to some highly publicized corporate failures, such as that of
Enron, the SEC has been critical of the efficiency and responsiveness of the FASB.
Although it is unlikely that the FASB will be replaced, reforms are likely. In addition,
the SEC may eventually begin to rely upon additional standard setters in the quest for
acceptable international accounting standards, although currently there are no other
entities constituted in such a way that the SEC could rely on them as it relies on the
FASB.
The SEC itself also influences the promulgation of accounting standards by taking
rulemaking initiatives which supplant accounting standards, implementing financial
disclosure requirements, establishing independence criteria for accountants, bringing
enforcement actions which encourage registrants and accountants to consider ac-
counting issues with greater care, and identifying potential accounting issues through
the review and comment process discussed above.
Additionally, the SEC’s Regulation S-X also establishes the form and content of
financial statements required to be filed as part of registration statements or other dis-
closures under the Securities Act, the Exchange Act, the Public Utility Holding Com-
pany Act of 1935, and the Investment Company Act of 1940. The requirements of
Regulation S-X generally address the format and style of financial statements, spec-
ify the content of certain financial statement footnotes, and prescribe schedules that
should be filed with financial statements.


14.4 CHALLENGES POSED TO THE SEC BY INTERNATIONAL DEVELOPMENTS.
The SEC has traditionally been viewed as having, if not the “best” disclosure re-
quirements, at least the most rigorous, and this has meant that its disclosure rules
have often been looked on as the “gold standard” for regulators. Although competing
capital markets have existed for many years, the U.S. markets (together with their
regulators) have been leery of competing for the business of issuers and investors lest
the competition result in a “race to the bottom.”
Contrary to what those regulators may have believed in the early 1990s, the “race
to the bottom” has not in fact occurred, and competition for listings and trading today
is among markets that offer more transparency, more and better regulation, and more


14 • 6 GLOBALIZATION OF WORLD FINANCIAL MARKETS
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