by Heidi Hylton Meier, D.B.A., CPA , Pervaiz Alam, Ph.D., CPA** and Michael A. Pearson, D.B.A., CPA, CMA***
Lobbying by auditors and their financial institution clients on proposed accounting standards is not at all uncommon. Standard-setting bodies, in fact, usually welcome lobbying efforts in the hopes that all points of view are heard.
Do auditors, however, offer their own assessments of proposed standards, or do they advocate their financial institution clients' positions in order to maintain favorable relationships? Auditor objectivity is essential to the public interest. As noted by the Public Oversight Board (POB), permitting clients to bias auditor responses to proposed standards "damages the standard-setting process and the interpretive process by denying those processes benefits that would otherwise be obtained from objective, wellreasoned and well-researched analyses of the issues."1
The lobbying process is described in this article, and possible reasons for lobbying are noted. As a specific example, we analyze efforts to affect proposed accounting standards dealing with banks and savings and loan associations (S&Ls).
LOBBYING AND THE STANDARD-SETTING PROCESS
The consequences of the accounting standard-setting process are many. At a minimum, some implementation costs are incurred every time a proposed accounting standard is adopted. Ideally, though, the benefits derived from higher quality accounting information exceed the sum of these implementation costs.
Each of us has a stake in the standard-setting process and its outcome because every new accounting pronouncement has an impact on manyand sometimes all-preparers, auditors, and users of accounting information. As such, some individuals and groups take steps to ensure the Financial Accounting Standards Board (FASB) is aware of their viewpoints; this is often referred to as "lobbying."
Lobbying is a part-some might claim an important part-of the FASB accounting standard-setting process. FASB states it is interested in input from its many constituencies, and, accordingly, the board has set up a formal lobbying mechanism.
FASB, the designated private-sector organization responsible for financial accounting standards, follows an extensive "due process" system open to public observation and participation. This system, modeled after the Federal Administrative Procedures Act, ensures lobbyists-whether preparers, auditors, or users of accounting information-are given the opportunity to provide input in the standard-setting process. Before a Statement of Financial Accounting Standards (SFAS) is issued, a FASB project will typically pass through the following sequence of steps:
1 ) Appointment of a task force
2) Issuance of a discussion memorandum (DM)
3) Public hearing
4) Analysis of oral and written comments
5) Meeting of FASB
6) Issuance of an exposure draft (ED)
7) Further FASB deliberations
Lobbying can take place at any point in the standard-setting process, although FASB specifically requests "lobbying" at public hearings and in response to the issuance of DMs and EDs. Sometimes lobbying actually continues after a final pronouncement has been issued because lobbyists hope to change the standard setters' minds concerning an issue. FASB maintains a file of all responses-written and oral-to proposed accounting standards, and the file is open for public scrutiny.
REASONS FOR LOBBYING
Some individuals and groups, of course, lobby in favor of or against a proposed accounting standard because they believe they know what is "right." Others might lobby in favor of or against depending on what is in their best interests. For example, preparers of accounting information might oppose a pronouncement that will require them to accumulate and publish more information for users; but users might support that same pronouncement because it will aid them in their decision making. …