Securities and Exchange Commission Historical Society

The Richard C. Adkerson Gallery on the SEC Role in Accounting Standards Setting

Strains on the Partnership

Congress Gets Involved

“The subcommittee’s accounting hearings have produced a broad array of pledges from the accounting profession to reform itself.  However, many witnesses have emphasized that an active SEC is essential to achieving necessary accounting reforms.  Congress originally intended that the SEC would actively exercise its accounting responsibilities, and I believe that the members of this subcommittee realize that the commission is the key to meeting our concern that the public is protected.”

- June 2, 1977 Letter from Senator Lee Metcalf, Chairman of the U.S. Senate Subcommittee on Reports, Accounting and Management, Committee on Governmental Affairs, to SEC Commissioner John R. Evans requesting Mr. Evans testify at hearings on accounting practices

Since the 1970s, Congress has evidenced increasing interest in accounting standards-setting, the accounting profession and oversight by the SEC. Spurred by several business failures including the 1973 collapse of Equity Funding, Congressional subcommittees led by Representative John Moss and Senator Lee Metcalf held hearings and conducted studies that included private sector setting of accounting standards and the role of the SEC.  

The Metcalf subcommittee staff report (The Accounting Establishment) charged that the major firms lacked independence from clients while monopolizing the auditing of large corporations and the standards-setting process.(35) Reports by both the Moss subcommittee and the Metcalf subcommittee staff recommended that the SEC assume directly the accounting standards-setting role for public entities and thus remove the private sector from standards setting.

The SEC retained its oversight role and neither subcommittee produced legislation. However, in 1978, Representative Moss introduced a bill in the House (Public Accountancy Regulatory Act) calling for a group modeled after the NASD and somewhat similar to the Public Company Accounting Oversight Board later established by the Sarbanes-Oxley Act of 2002 (S-Ox).  The bill did not gain sufficient support, but the establishment of the Division of CPA Firms within the AICPA and the Public Oversight Board (POB) were in response to the concerns in the Moss bill.(36)

Congressional investigation of the auditing profession continued, although directed principally to audit quality and independence rather than accounting standards setting. Rep. John Dingell conducted numerous oversight hearings in the mid-1980s.

In the 1980s, Congress began directing the US Government Accountability Office (GAO) to review factors, including audit quality, which led to failures of various businesses, including savings and loan institutions and banks. GAO accounting recommendations were addressed by subsequent FASB statements.

As best exemplified by stock options, Congress has reacted to constituents’ complaints about various FASB proposals, occasionally quite vigorously.(37) S-Ox was the most significant legislation since the 1930s to affect the accounting profession and accounting standards-setting.

As recently as 2009, legislation was proposed in the House to establish a new federal board to approve and oversee accounting principles and standards.(38) That bill gained no traction, but amendments were proposed to the Financial Stability Improvement Act (Dodd/Frank) that would provide that the Financial Services Oversight Council could review and submit comments to the FASB and SEC on existing or proposed accounting standards.


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Footnotes:

(35) December 1976 Summary of the Accounting Establishment - Subcommittee on Reports, Accounting and Management of Senate Committee on Government Operations (Metcalf Committee).

(36) The POB was created in 1977 as an independent private sector body to oversee and report on the programs of the SEC Practice Section (SECPS), also created in 1977 by the AICPA. The POB was the cornerstone of the profession’s self-regulatory system and was succeeded in 2002 by the Public Company Accounting Oversight Board.

(37) It seems likely that Congress will continue try to influence standards-setting when it can. In May 2012, a group of 60 members of Congress warned the FASB of “disastrous consequences” for American businesses and the real estate industry if lease accounting proposals are approved.

(38) H.R. 1349 (111th) Federal Accounting Oversight Board of 2009.

Related Museum Resources

Papers

1975
image pdf (AICPA Collection, University of Mississippi)
March 26, 1976
transcript pdf (Courtesy of the National Archives and Records Administration)
September 22, 1976
transcript pdf (Courtesy of the estate of John R. Evans; made possible through a gift from Quinton F. Seamons)
October 1976
transcript pdf (AICPA Collection, University of Mississippi)
December 1976
transcript pdf (AICPA Collection, University of Mississippi)
January 27, 1977
image pdf (JT Ball Collection, University of Mississippi)
February 14, 1977
image pdf (JT Ball Collection, University of Mississippi)
April 12, 1977
image pdf (Courtesy of the estate of John R. Evans; made possible through a gift from Quinton F. Seamons)
April 14, 1977
Financial Accounting Foundation and Financial Accounting Standards Board Statement of Position on "The Accounting Establishment"

(JT Ball Collection, University of Mississippi)

April 20, 1977
image pdf (Courtesy of the Jimmy Carter Library and Museum)
April 21, 1977
image pdf (JT Ball Collection, University of Mississippi)
April 21, 1977
image pdf (JT Ball Collection, University of Mississippi)
June 2, 1977
image pdf (Courtesy of the estate of John R. Evans; made possible through a gift from Quinton F. Seamons)
November 1977
image pdf (AICPA Collection, University of Mississippi)
January 4, 1978
transcript pdf (Courtesy of the estate of John R. Evans; made possible through a gift from Quinton F. Seamons)
February 16, 1978
image pdf (Courtesy of the estate of John R. Evans; made possible through a gift from Quinton F. Seamons)
March 3, 1978
transcript pdf (Courtesy of the estate of John R. Evans; made possible through a gift from Quinton F. Seamons)
April 19, 1978
image pdf (JT Ball Collection, University of Mississippi)
April 24, 1978
image pdf (JT Ball Collection, University of Mississippi)
May 8, 1978
image pdf (Courtesy of the estate of John R. Evans; made possible through a gift from Quinton F. Seamons)
July 1, 1978
image pdf (Courtesy of the estate of John R. Evans; made possible through a gift from Quinton F. Seamons)
August 22, 1978
image pdf (Government Records)
September 30, 1978
image pdf (Government Records)
December 8, 1978
image pdf (Courtesy of the estate of John R. Evans; made possible through a gift from Quinton F. Seamons)
January 9, 1979
image pdf (Government Records)
February 28, 1979
image pdf (Courtesy of the estate of John R. Evans; made possible through a gift from Quinton F. Seamons)
September 25, 1979
image pdf (Courtesy of the estate of John R. Evans; made possible through a gift from Quinton F. Seamons)
November 19, 1979
image pdf (Courtesy of the estate of John R. Evans; made possible through a gift from Quinton F. Seamons)
August 1980
image pdf (Courtesy of the Library of Congress)
September 30, 1980
image pdf (Government Records)
November 3, 1980
image pdf (Government Records)
September 30, 1982
image pdf (Government Records)
March 25, 1983
image pdf (Courtesy of the estate of John R. Evans; made possible through a gift from Quinton F. Seamons)
September 30, 1983
image pdf (Government Records)
July 31, 1984
image pdf (Courtesy of the American Institute of Certified Public Accountants)
September 30, 1984
image pdf (Government Records)
February 11, 1985
image pdf (JT Ball Collection, University of Mississippi)
February 20, 1985
image pdf (JT Ball Collection, University of Mississippi)
June 7, 1985
Letter from Donald Kirk, Financial Accounting Standards Board to Representative John Dingell with FASB Summary of Statements of Financial Accounting Standards Nos. 1 to 85

(JT Ball Collection, University of Mississippi)

July 12, 1985
image pdf (JT Ball Collection, University of Mississippi)
September 30, 1985
image pdf (Government Records)
November 7, 1985
image pdf (JT Ball Collection, University of Mississippi)
April 24, 1986
image pdf (JT Ball Collection, University of Mississippi)
June 23, 1986
image pdf (Courtesy of Stuart Kaswell)
September 30, 1986
image pdf (Government Records)
March 23, 1987
transcript pdf (Courtesy of Stuart Kaswell)
April 15, 1987
image pdf (JT Ball Collection, University of Mississippi)
September 30, 1987
image pdf (Government Records)
August 26, 1988
image pdf (JT Ball Collection, University of Mississippi)
September 30, 1988
image pdf (Government Records)
February 21, 1989
image pdf (JT Ball Collection, University of Mississippi)
February 21, 1989
image pdf (JT Ball Collection, University of Mississippi)
September 30, 1989
image pdf (Government Records)
September 30, 1990
image pdf (Government Records)
September 30, 1991
image pdf (Government Records)
September 30, 1992
image pdf (Government Records)
October 28, 1993
image pdf (Anonymous)
September 30, 1995
image pdf (Government Records)
March 20, 1997
image pdf (JT Ball Collection, University of Mississippi)
March 25, 1997
image pdf (JT Ball Collection, University of Mississippi)
May 13, 1997
image pdf (JT Ball Collection, University of Mississippi)
April 17, 2000
image pdf (With permission of Arthur Levitt Papers, Rare Book & Manuscript Library, Columbia University in the City of New York)
May 2, 2000
image pdf (With permission of Arthur Levitt Papers, Rare Book & Manuscript Library, Columbia University in the City of New York)
May 31, 2000
image pdf (With permission of Arthur Levitt Papers, Rare Book & Manuscript Library, Columbia University in the City of New York)
July 17, 2000
image pdf (With permission of Arthur Levitt Papers, Rare Book & Manuscript Library, Columbia University in the City of New York)
November 2000
transcript pdf (Richard K. Armey Papers, courtesy of the Carl Albert Congressional Research and Studies Center, University of Oklahoma, Norman, Oklahoma)
September 30, 2008
image pdf (Courtesy of an anonymous donor)

Oral Histories

07 November 2005

Aulana Peters

07 July 2005

A. Clarence Sampson

01 October 2001

A.A. Sommer, Jr.

13 April 2011

Jerry Sullivan

Galleries

In the Midst of Revolution: The SEC, 1973-1981

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