Under an agreement between the Securities and Exchange Commission and the parent foundation of the Financial Accounting Standards Board, the SEC will have more authority over the appointment of members of the private board, The Wall Street Journal reported Wednesday.
In a two-page memo sent to the SEC on March 9, FASB’s parent unit, the Financial Accounting Foundation, agreed with the commission that the FAF and FASB should generally notify the SEC 45 days before but no less than 30 days before the FAF nominates foundation or FASB members, according to the newspaper. The foundation also reportedly agreed to follow a set schedule for telling the SEC about potential appointments and reappointments to FASB and to the FAF board.
FAF also signed off on giving the SEC the chance to nominate its own candidates and to notify the SEC of finalists for any position, according to the Journal story. The agreement will also allow commissioners to interview nominees, the newspaper reported, citing a copy of the memo provided to it by FAF.
FAF still has the final say on appointments and reappointments, according to the memo signed by Robert E. Denham, the foundation’s chairman and a leading securities lawyer with Munger, Tolles & Olson LLP.
The agreement nails down a 2003 policy statement by the commission. Under the Sarbanes-Oxley Act of 2002, FASB and its parent, the Financial Accounting Foundation, must give the commission “timely notice of, and discuss with the Commission” FAF’s intent to name a new FASB or FAF member, the SEC said then.
In its April, 2003, policy statement, the SEC said that the “FAF and FASB should give the Commission timely notice of, and discuss with the Commission, the FAF’s intention to appoint a new member of the FAF or FASB.” Further, the SEC said that it “should provide the FAF with our views and that the FAF should consider those views in making its final selection.”
The commission’s policy statement also has a paragraph recognizing “the importance of the FASB’s independence.” In its role “as the preeminent accounting standard setter in the private sector” the board “must use independent judgment in setting standards and should not be constrained in its exploration and discussion of issues. This is necessary to ensure that the standards developed are free from bias and have the maximum credibility in the business and investing communities,” the commission said then.