A bipartisan bill introduced in the House of Representatives on Tuesday would bring more transparency and accountability to US government financial statements by making the advisory committee that develops accounting standards for federal agencies more independent.
The legislation, called the Federal Financial Statement Transparency Act (HR 4678), intends to encourage the federal government to clean up its balance sheet, which would lead to a more honest depiction of the country’s finances and allow Congress to balance the budget and address the nation’s rising debt, according to Representative Jim Renacci (R-OH), a CPA who introduced the bill earlier today along with Delaware Democrat John Carney.
To do this, Renacci is proposing removing the US Treasury Department’s voting rights from the nine-member Federal Accounting Standards Advisory Board (FASAB) and independently funding the panel’s operations.
He noted that the Treasury Department uses accounting standards set by the FASAB when compiling consolidated financial statements, not those issued by the Financial Accounting Standards Board or the Governmental Accounting Standards Board. According to the Committee for a Responsible Federal Budget (CRFB), FASAB members propose and debate accounting and financial reporting standards for the federal government’s financial statements, with a two-thirds majority vote required to approve new standards.
Mark Reger, deputy assistant secretary of accounting policy for the Treasury Department’s Office of the Fiscal Assistant Secretary, currently serves on the panel, along with one representative each from the US Government Accountability Office and the Office of Management and Budget. The FASAB is also comprised of six nonfederal members, including academics and representatives from accounting firms.
The legislation would make the Treasury Department, which is responsible for writing the financial statements and applying the recommended standards, a nonvoting member of the board, while adding a seventh nonfederal member, according to the CRFB. The FASAB would receive a dedicated funding source in the form of a fee on the sale of US Treasury securities.
Renacci believes the Treasury Department should not be allowed to vote on the standards it uses to compile federal government financial statements. Under the proposed bill, if the Treasury Department fails to implement a standard set by the FASAB, it would be required to submit a public report explaining why.
“Establishing FASAB was a step in the right direction, but it lacks independence – opening the door to political influence,” Renacci said in a written statement. “At a time when we are facing a $17.5 trillion debt, hardworking American taxpayers deserve an accurate picture of our government’s finances. This is why I have introduced the Federal Financial Statement Transparency Act – bipartisan legislation that would lead to more transparency and accountability within US financial statements. We know that we must tackle our spending-driven debt crisis, and identifying exactly where we stand financially is a critical first step to addressing it.”
In a statement, the American Institute of CPAs (AICPA) said it supports the legislation, calling it a “meaningful step toward ensuring FASAB has adequate resources to carry out its mission and address important accounting principles for the federal government.”
“Since our 1999 designation of FASAB as the accounting standard-setting body for federal entities under Rule 203 of the AICPA’s Code of Professional Conduct, there have been many improvements made by FASAB to ensure its independence,” said AICPA President and CEO Barry Melancon, CPA, CGMA. “Importantly, HR 4678’s establishment of a sustainable funding mechanism for FASAB enhances the criterion of human and financial resources that is considered integral to its independence.
“As a CPA, Representative Jim Renacci recognizes the importance of enhancing FASAB’s funding and governance. He, Representative John Carney, and the bill’s other cosponsors are to be commended for their leadership on this issue.
“We welcome the introduction of this legislation and hope that in tandem with our ‘What’s at Stake?’ initiative – which provides a clear analysis of the federal government’s financial statements – it will elevate the dialogue about the nation’s fiscal health.”