Financial Accounting Fairness Act of 1998

Summary: Financial Accounting Fairness Act of 1998 - Amends the Securities Exchange Act of 1934 to prescribe guidelines under which the Securities and Exchange Commission (SEC) must review and approve accounting principles proposed by an accounting standards board as a prerequisite to SEC treatment of:  (1) such proposals as generally accepted accounting principles; and (2) industry financial statements as being non-compliant with generally accepted accounting principles. 
Includes within such guidelines:  (1) SEC consideration of investor protection, and the promotion of efficiency, competition, and capital formation; (2) SEC consultation with Federal banking agencies; (3) a public file of the record engendered by a proposed accounting principle; and (4) the availability of judicial review.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Financial Accounting Fairness Act of 
1998''.

SEC. 2. FINDINGS.

    The Congress finds the following:
            (1) The Financial Accounting Standards Board was 
        established in 1972 as a private sector body to establish and 
        improve financial accounting principles.
            (2) In 1973, the Securities and Exchange Commission, which 
        is statutorily empowered to prescribe accounting principles to 
        be used in financial statements filed with the Securities and 
        Exchange Commission and otherwise used pursuant to the Federal 
        securities laws, established a presumption that financial 
        statements that do not comply with financial accounting 
        principles promulgated by the Financial Accounting Standards 
        Board would be misleading and therefore in violation of those 
        laws.
            (3) Since 1973, financial accounting principles established 
        by the Financial Accounting Standards Board accordingly have 
        generally had the full force and effect of Securities and 
        Exchange Commission regulations.
            (4) Questions have been raised as to whether under these 
        circumstances persons aggrieved by a Financial Accounting 
        Standards Board pronouncement of financial accounting 
        principles would have the right to judicial review thereof, and 
        whether such pronouncements must comply with statutory and 
        other requirements applicable to the promulgation of Securities 
        and Exchange Commission.
            (5) Congress believes it appropriate to provide that, under 
        these circumstances, such promulgations by the Financial 
        Accounting Standards Board are covered by statutory and other 
        requirements relating to the adoption of regulations by the 
        Securities and Exchange Commission, including provisions 
        relating to judicial review and provisions, among other things, 
        requiring that the Commission consider whether proposed 
        regulations would promote efficiency, competition, and capital 
        formation.

SEC. 3. AVAILABILITY OF JUDICIAL REVIEW.

    Section 19 of the Securities Exchange Act of 1934 (15 U.S.C. 78s) 
is amended--
            (1) by adding at the end of the heading of such section the 
        following: ``; oversight of accounting principles''; and
            (2) by adding at the end the following new subsection:
    ``(j) Review of Financial Accounting Principles.--
            ``(1) Express approval of accounting principles required.--
        The Commission shall not treat any proposed accounting 
        principle of any accounting standards board as a generally 
        accepted accounting principle for purposes of any financial 
        statement, report, or other document required under any of the 
        securities laws unless such proposed accounting principle has 
        been approved by the Commission in accordance with the 
        requirements of this subsection. The Commission shall not treat 
        any such statement, report, or document as being without 
        substantial authoritative support because of the failure of 
        such statement, report, or document to comply with any proposed 
        accounting principle until such proposed accounting principle 
        has been approved by the Commission in accordance with the 
        requirements of this subsection, or the Commission has 
        otherwise expressly provided by rule or regulation.
            ``(2) Review of accounting principles.--Each accounting 
        standards board shall file with the Commission, in accordance 
        with such rules as the Commission may prescribe, copies of any 
        proposed accounting principle or any proposed change in, 
        addition to, or deletion from the accounting principles of such 
        board (hereinafter in this subsection collectively referred to 
        as a `proposed accounting principle') accompanied by a concise 
        general statement of the basis and purpose of such proposed 
accounting principle. The Commission shall, upon the filing of any 
proposed accounting principle, publish notice thereof together with the 
terms of substance of the proposed accounting principle or a 
description of the subjects and issues involved. The Commission shall 
give interested persons a reasonable opportunity to submit written 
data, views, and arguments concerning such proposed accounting 
principle.
            ``(3) Procedure for review.--Within 35 days of the date of 
        publication of notice of the filing of a proposed accounting 
        principle in accordance with paragraph (2) of this subsection, 
        or within such longer period as the Commission may designate up 
        to 90 days of such date if it finds such longer period to be 
        appropriate and publishes its reasons for so finding or as to 
        which the accounting standards board consents, the Commission 
        shall--
                    ``(A) by order approve such proposed accounting 
                principle, or
                    ``(B) institute proceedings to determine whether 
                the proposed accounting principle should be 
                disapproved.
        Such proceedings shall include notice of the grounds for 
        disapproval under consideration and opportunity for hearing and 
        be concluded within 180 days of the date of publication of 
        notice of the filing of the proposed accounting principle. At 
        the conclusion of such proceedings the Commission, by order, 
        shall approve or disapprove such proposed accounting principle. 
        The Commission may extend the time for conclusion of such 
        proceedings for up to 60 days if it finds good cause for such 
        extension and publishes its reasons for so finding or for such 
        longer period as to which the accounting standards board 
        consents. The Commission shall not approve any proposed 
        accounting principle prior to the 30th day after the date of 
        publication of notice of the filing thereof, unless the 
        Commission finds good cause for so doing and publishes its 
        reasons for so finding.
            ``(4) Grounds for approval.--The Commission shall approve a 
        proposed accounting principle of a board if it finds that such 
        proposed accounting principle is consistent with the public 
        interest and the protection of investors. The Commission shall 
        disapprove a proposed accounting principle of a board if it 
        does not make such finding. In determining whether such 
        proposed accounting principle is consistent with the public 
        interest, the Commission shall also consider, in addition to 
        the protection of investors, whether the principle will promote 
        efficiency, competition, and capital formation. The Commission 
        shall not approve a proposed accounting principle that would 
        impose a burden on competition not necessary or appropriate in 
        furtherance of the purposes of this title.
            ``(5) Consultation with banking agencies.--In reviewing any 
        proposed accounting principle that will apply to any persons 
        subject to examination by or reporting requirements of a 
        Federal banking agency, the Commission shall consult with and 
        consider the views of each such Federal banking agency. If a 
        Federal banking agency comments in writing on a proposed 
        accounting principle that has been published for comment, the 
        Commission shall respond in writing to such written comment 
        before approving or disapproving the proposed accounting 
        principle. The Commission shall, at the request of a Federal 
        banking agency, publish such comment and response in the 
        Federal Register at the time of approving or disapproving the 
        proposed accounting principle.
            ``(6) Agency record.--At the time of filing any proposed 
        accounting principle under paragraph (2), an accounting 
        standards board shall submit to the Commission the record of 
        its proceedings in connection with such principle. Such record 
        shall include all written comments or statements filed with the 
        accounting standards board with respect to the proposed 
        accounting principle and all written communications between the 
        accounting standards board and any person relating to the 
        proposed accounting principle. The Commission, in reviewing a 
        proposed accounting principle, shall keep in a public file and 
        make available for copying the record submitted by the 
        accounting standards board and all written statements filed 
        with the Commission with respect to the proposed accounting 
        principle and all written communications between the Commission 
        and any person relating to the proposed accounting principle. 
        The Commission shall not be required to keep in a public file 
        or make available for copying any such statement or 
        communication that it may withhold from the public in 
        accordance with section 552 of title 5, United States Code.
            ``(7) Judicial review available.--Any proposed accounting 
        principle that the Commission has approved under paragraph (4) 
        shall, for purposes of section 25 of this title, be considered 
        to be a rule of the Commission promulgated pursuant to this 
section.
            ``(8) Definitions.--For purposes of this subsection:
                    ``(A) Proposed accounting principle.--
                            ``(i) Accounting principle.--The term 
                        `accounting principle' means a statement or 
                        interpretation of a standard or concept of, or 
                        guidance with respect to, financial accounting 
                        or reporting, but does not include any 
                        technical bulletin, discussion memorandum, 
                        invitation to comment, special or research 
                        report, or response to an inquiry or other 
                        request.
                            ``(ii) Proposed accounting principle.--The 
                        term `proposed accounting principle' means an 
                        accounting principle that has been formally 
                        adopted or ratified by the standard-setting 
                        body of an accounting standards board.
                    ``(B) Accounting standards board.--The term 
                `accounting standards board' means an accounting 
                standards-setting organization whose principles are, 
                pursuant to rules or regulations of the Commission, 
                treated by Commission as generally accepted accounting 
                principles for purposes of any financial statement, 
                report, or other document required to be filed under 
                any of the securities laws.
                    ``(C) Federal banking agency.--The term `Federal 
                banking agency' has the meaning provided in section 
                3(z) of the Federal Deposit Insurance Act (12 U.S.C. 
                1813(z)).
            ``(9) Effective Date.--The provisions of this subsection 
        shall apply with respect to any accounting principle that is 
        formally adopted or ratified by the standard-setting body of an 
        accounting standards board on or after January 1, 1998.''.