“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.”
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.