CCH Financial Reform News Center

Legislation Would Align Financial Accounting for Stock Options with Federal Tax Code

This story appeared in Jim Hamilton's World of Securities Regulation.

Bi-partisan legislation would align the GAAP treatment of stock options under FASB financial accounting standards with how options are treated under the Internal Revenue Code. FASB rules value stock options on their grant date, while and the Code values stock options on their exercise date, two numbers that rarely match. Bolstering the need for the legislation, data recently compiled by the IRS shows that corporations who issued stock options to their executives claimed 2008 stock option tax deductions that were collectively $52 billion larger than the expenses shown on the company books for options granted during the tax year covered by the returns.

Bachus Requests Hearing on Lehman Collapse

This story appeared in Bank Digest

Rep. Spencer Bachus, R-Ala., has sent a letter to Financial Services Committee Chairman Barney Frank, D-Mass., calling for an investigatory hearing to be held on the bankruptcy of Lehman Brothers, whose collapse contributed to the financial crisis in the fall of 2008. As Ranking Member on the Committee, Bachus called for the hearing on new revelations detailing potential accounting fraud at the investment bank and lax oversight by federal regulators. Bachus said the report from Lehman Brothers' court-appointed bankruptcy examiner shows a failure of government regulators, including the Federal Reserve Board and the Securities and Exchange Commission, to act on evidence of accounting gimmicks used to hide the company's debt and mask its insolvency. “This report casts additional doubts on the ability of the Federal Reserve to effectively perform the expanded supervisory responsibilities called for in House and Senate regulatory reform bills,” Bachus said.

Financial Crisis Advisory Group Reports to G-20 on Convergence of Accounting Standards

By James Hamilton, J.D., LL.M., Principal Analyst, CCH Federal Securities Law Reporter; and CCH Derivatives Regulation Law Reporter.

In a letter to the G-20, a joint FASB-IASB expert group said that it remains critically important to produce a single set of high quality, globally converged financial reporting standards that provide consistent, unbiased, transparent and relevant information across geographical boundaries. The Financial Crisis Advisory Group expects the standard setting process to continue in a spirit of independence and accountability. In order to develop high-quality standards that provide unbiased, transparent and relevant information, noted the group, it is critical that FASB and the IASB enjoy a high degree of independence from undue commercial and political pressures. At the same time, they must have a high degree of accountability through appropriate due process, including wide engagement with constituents. The G-20 has consistently called for convergence towards a single set of high-quality, global, independent accounting standards.

PCAOB Internal Report Reveals Significant Challenges to International Inspections Program

This story appeared in Jim Hamilton's World of Securities Regulation.

An internal report transmitted to the SEC reveals that the PCAOB’s international inspections program faces significant challenges, including accountability, delays in conducting inspections, and inconsistent documentation. These challenges were compounded by widely-reported audit failures outside the U.S., coupled with internal concerns regarding the manner in which international inspections were being performed, causing the Board to reassess its non-U.S. inspection program. The report was prepared by the Board's Office of Internal Oversight and Performance Assurance.

House Passed Legislation Bringing Auditors of Brokerage Firms with Purview of PCAOB; Enhancing Foreign Regulatory Information Sharing

By James Hamilton, J.D., LL.M., Principal Analyst, CCH Federal Securities Law Reporter; and CCH Derivatives Regulation Law Reporter.

Closing a statutory loophole revealed by the Madoff scandal, the House has passed legislation authorizes the PCAOB to flexibly examine the auditors of broker-dealers. Thus, the Wall Street Forum and Consumer Protection Act, HR 4173, would bring auditors of broker-dealers under the PCAOB oversight regime. The Board can inspect the auditors of broker-dealer financial statements; and will have investigatory, examination and enforcement authority over the auditors of broker-dealers. In addition, brokers and dealers would be brought into the Board’s funding scheme by paying a fee allocation in proportion to their net capital compared to the total net capital of all brokers and dealers that are not issuers, in accordance with the rules of the Board. The Act also authorizes the Board to refer an investigation concerning a broker or dealer’s audit report to the relevant self-regulatory organization. Moreover, the Board is authorized to share with the SRO all information and documents received in connection with an investigation or inspection without breaching its confidential status.

SEC Enhances Proxy Disclosure, Adviser Custody Rules

This story appeared in Jim Hamilton's World of Securities Regulation.

The SEC adopted rule and form changes intended to enhance the information provided in proxy solicitations and in other forms filed with the SEC. Beginning in the upcoming annual reporting and proxy season, the new rules will improve corporate disclosure regarding risk, compensation and corporate governance matters when voting decisions are made. In addition, the SEC adopted rule changes designed to substantially increase the protections for investors who turn their money and securities over to investment advisers.

CCH Briefing Paper Examines House Legislation

The CCH Editorial Staff of banking and securities law analysts has authored a detailed overview titled, "House Passes Wall Street Reform Act." From the introduction:

On December 11, 2009, the U.S. House of Representatives passed legislation to restructure the financial services regulatory system, the Wall Street Reform and Consumer Protection Act of 2009 (HR 4173), by a vote of 223-202. As discussed below, the sweeping array of reforms includes the Financial Stability Improvement Act, which would create a systemic risk regulator, strengthen regulation of depository institutions and bank holding companies, improve the asset-backed securitization process, and provide for an enhanced dissolution authority. The legislation also would create a Consumer Financial Protection Agency, reform the over-the-counter derivatives market, subject hedge funds to stricter scrutiny, impose new corporate governance mandates, adopt heightened requirements for credit rating agencies and expand regulatory enforcement powers. Among other measures, the legislation features expansive consumer mortgage protections and creates a Federal Insurance Office.

Download the briefing paper

SEC Commissioner Urges Policy Changes That Put Investors First

This story appeared in SEC Today

Commissioner Kathleen Casey warned against standard setting and rulemaking based on political pressure or commercial considerations in a speech to Financial Executives International. Financial reporting and accounting standard setting must focus on the needs of investors, she said. The interests of investors and other users of financial statements are often aligned, but when they are not, Casey said it would be a mistake to promote accounting standards that make financial statements less transparent for investors. Her remarks are posted on the SEC’s Web site.

House Legislation Requires FASB to Study Securitization, Orders New Regulator to Weigh Standards Affecting Systemic Risk

This story appeared in Jim Hamilton's World of Securities Regulation

Two amendments added during mark-up to the Financial Stability Improvement Act (HR 3996) could impact FASB standard-setting. The Garrett Amendment would require FASB to conduct a study of its new securitization accounting standards, while the Perlmutter-Lucas Amendment would require the new systemic risk regulator to make recommendations to the SEC on FASB standards affecting market-wide financial stability. The legislation is expected to pass the House Financial Services Committee in early December.

Debate Rages on Amendment to Exempt Smaller Companies from 404(b) of Sarbanes-Oxley

This story appeared in Jim Hamilton's World of Securities Regulation

The bipartisan Garrett-Adler Amendment exempting smaller reporting companies from the internal control auditor attestation requirements contained in Section 404(b) of the Sarbanes-Oxley Act has been criticized by an SEC Commissioner even while it appears to have White House and Treasury support. The amendment is part of the Investor Protection Act that recently passed the House Financial Services Committee. The amendment’s language mirrors legislation Rep. Garrett introduced earlier this year, the Small Business SOX Compliance Relief Act, HR 3775.