SEC seeks closer regulatory relationship with GASB.

Since the enactment of the Securities Exchange Act of 1934, the Securities and Exchange Commission has maintained the authority to establish financial accounting and reporting standards for publicly held companies. Now, the SEC is interested in acquiring the same type of statutory authority to establish standards for accounting and disclosure for state and local governments. In a speech to members and staff of the Financial Accounting Standards Board and the Governmental Accounting Standards Board, Richard Y. Roberts, SEC commissioner, said the SEC does not share the same relationship with the GASB as it does with the FASB, but he added, "At some future time I am more and more inclined to believe that we should."

The commissioner said recent developments in the municipal securities market, such as derivative products and derivativelike investments, have received a great deal of attention and will raise the awareness of the GASB and its role in addressing the standards for accounting recognition and disclosure. He pointed to GASB Technical Bulletin no. 94-1, Disclosures about Derivatives and Similar Debt and Investment Transactions, as a positive step, but said, "Additional progress by GASB is necessary to address these kinds of critical accounting and financial reporting issues."

Roberts said one solution to the problems of municipal securities disclosure would be for Congress to pass legislation that would give the SEC the express authority to set the accounting standards for issuers of these instruments. "The commission could then use this increased authority to defer to GASB, as it does with FASB in the corporate area, to establish standards and make them mandatory as a practical matter," said Roberts. "There appears to be some support in Congress for this approach, and I would be inclined to support such an approach at the appropriate time."

Another possibility, suggested Roberts, is that Congress pass legislation to rescind the exempt status of municipal bonds under the Securities Exchange Act, subjecting them to the same reporting obligations applicable to corporate bond issuers.

Responding to Roberts' remarks, james F. Antonio, who served as GASB chairman from its creation in 1984 until June 31, 1995, told the Journal that the GASB must continue to fulfill its responsibility for making improvements in state and local government financial reporting independent of the federal government. "If the GASB continues to fulfill its responsibility, I don't think anybody should step in, and that includes the SLC," Antonio said.

Financial reporting

Turning to other issues, Roberts lauded efforts by the GASB to establish a financial reporting model for state and local governments. The commissioner said that although there is still diversity in preparing financial statements, a growing number of municipal issuers are relying on generally accepted accounting principles as determined by the GASB. "Forty-six states currently require or are in the process of establishing a requirement that state government financial statements be presented in accordance with GAAP," said the commissioner. "The GASB has established a credible record of progress as a standard setter, and I am confident that this progress will continue."