Academic journal article Journal of Accountancy

Financial Regulatory Reform: What You Need to Know

Academic journal article Journal of Accountancy

Financial Regulatory Reform: What You Need to Know

Article excerpt


The Dodd-Frank Wall Street Reform and Consumer Protection Act, which became law in July, will create new regulations for companies that extend credit to consumers, exempt small public companies from Sarbanes-Oxley section 404(b), make auditors of broke>dealers subject to PCAOB regulation and change registration requirements for investment advisers. The profession successfully advocated for CPAs to be carved out of the new Consumer Financial Protection Bureau for usual and customary activities.

Some highlights of the legislation that may be of particular interest to CPAs are summarized below (see Exhibit 1 for additional details).


The legislation creates a new systemic risk regulator called the Financial Stability Oversight Council. The council, chaired by the Treasury secretary and whose members will be heads of regulatory agencies, including the chairmen of the Federal Reserve, FDIC and SEC among others, will identify any company, product or activity that could threaten the financial system.

The Federal Reserve will supervise the companies identified by the council, and the FDIC would carry out instructions by the council to close large entities under a new orderly liquidation authority. The council, through the Federal Reserve, will also have the power to break up large firms, require increased reserves, or veto rules created by another new regulator--the Bureau of Consumer Financial Protection--with a two-thirds vote.


The Bureau of Consumer Financial Protection consolidates most federal regulation of financial services offered to consumers and replaces the Office of Thrift Supervision's seat on the FDIC board. Almost all credit providers, including mortgage lenders, providers of payday loans, other nonbank financial companies, and banks and credit unions with assets over $10 billion will be subject to new regulations.

CPAs providing "customary and usual" accounting activities, including the provision of "accounting, tax, advisory, or other services that are subject to the regulatory authority of a [s]tate board of accountancy" are carved out from the bureau's authority. In addition, other services "incidental" to such usual and customary accounting activities, to the extent that they are not offered or provided separate and apart from such customary and usual accounting activities or to consumers who are not receiving such customary and usual accounting activities, are also carved out. Refund anticipation loan providers are not exempt.


The act amends the Sarbanes-Oxley Act (SOX) to make permanent the exemption from its section 404(b) requirement for nonaccelerated filers (those with less than $75 million in market cap) that has temporarily been in effect by order of the SEC. The act also requires the SEC to complete a study within nine months of the act's enactment on how to reduce the burden of 404(b) compliance for companies with market caps between $75 million and $250 million. The study will consider whether any such methods of reducing the burden, or a complete exemption, would encourage companies to list on exchanges.


The act closed an ambiguity in SOX. Under SOX, auditors of broker-dealers were required to register with the board, but the board did not find SOX gave it authority to regulate auditors of privately-held broker-dealers. "The Dodd-Frank Act provides the PCAOB with standard-setting, inspection and disciplinary authority regarding broker-dealer audits," said the PCAOB in a statement.

However, the act allows the PCAOB, in its inspection rule, to differentiate among broker-dealer classes and exempt introducing brokers such as those who do not engage in clearing, carrying or custody of client assets. The act reconciles registration with inspection so that any auditors not covered by the inspection rule would also no longer be required to register with the PCAOB. …

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