[Congressional Record (Bound Edition), Volume 149 (2003), Part 16]
[Extensions of Remarks]
[Pages 22539-22540]
[From the U.S. Government Publishing Office, www.gpo.gov]




                THE IMPORTANCE OF INDEPENDENCE FOR FASB

                                 ______
                                 

                           HON. BARNEY FRANK

                            of massachusetts

                    in the house of representatives

                       Monday, September 22, 2003

  Mr. FRANK of Massachusetts. Mr. Speaker, earlier this year, I 
received a very thoughtful letter from Eugene O'Kelly, the Chairman and 
Chief Executive Officer of KPMG. I was thoroughly impressed to receive 
a strong letter in favor of the independence of accounting standards 
from the Chief Executive of this major accounting firm. I believe Mr. 
O'Kelly's letter makes a very important contribution to the debate on a 
significant public policy issue and I ask that it be printed here.

                                                             KPMG,


                                                  Park Avenue,

                                       New York, NY, July 9, 2003.
     Hon. Barney Frank,
     Ranking Minority Member, House Committee on Financial 
         Services
     Rayburn House Office Building, Washington, DC.
       Dear Congressman Frank: That public trust in our capital 
     markets institutions has been badly shaken by recent 
     corporate scandals is a truth that hardly needs repeating. 
     Congress recognized the need to restore that trust when it 
     passed the Sarbanes-Oxley Act. Among its many reforms, the 
     Act established an independent funding source for the 
     Financial Accounting Standards Board, to avoid any appearance 
     of undue influence. It would be sadly ironic if the Congress 
     itself were now to undermine the independence of the FASB.
       The immediate controversy, of course, is accounting for 
     stock options, but it is not my purpose here to debate that 
     subject (KPMG is on record that they should be expensed). 
     Rather, I am concerned about a more fundamental issue--
     namely, the integrity of the independent standard-setting 
     process that has served out financial markets remarkably well 
     for decades.
       To do right by investors, the FASB must be free to render 
     its judgments on the basis of sound accounting and firancial 
     reporting, the lodestar of which is transparency. As the FASB 
     patiently (if sometimes inartfully) explains, it does not, 
     indeed it must not, take into account the economic 
     consequences of the standards it writes. Critics seize upon 
     this position to justify legislative intervention on the 
     basis of economic policy. But this criticism misses the 
     point. The FASB bases its standards on clarity and 
     transparency rather than other factors precisely because this 
     is the only approach beneficial to a free-market economy.
       The purpose of financial reporting is to provide investors 
     as clear a window as possible into a company's underlying 
     operations and results. When it succeeds, the markets 
     efficiently allocate capital to its highest and best uses, 
     and the economy prospers. To set accounting standards in 
     order to engineer a particular outcome or to benefit a 
     certain industry would distort the true picture of company 
     performance and misdirect the flow of investment. To 
     understand the ensuing damage, we need look no farther than 
     to the end of the last century, littered with the failures of 
     central economic planning.
       To provide transparency to investors, in other words, 
     accounting standard setters must be neutral with respect to 
     economic winners and losers. They cannot be influenced by 
     concerns over which industry is in

[[Page 22540]]

     favor or in need. This is a task for which an elected body is 
     frankly ill suited. Just consider the consequences to our 
     capital markets if financial reporting were subject to the 
     same vicissitudes of politics and public opinion as, say, 
     fiscal policy.
       Congress, like all interested parties, has every right to 
     make its views known on the standards proposed by the FASB. 
     And all those affected have a right to thorough due process 
     in the FASB's decision-making. Ultimately, however, the FASB 
     must be free from political pressure to make its decisions on 
     the merits of transparency. Over the years, Congress wisely 
     has resisted the temptation to intervene. Today, when more 
     than ever investors need to know that financial reports tell 
     the straight story, nothing less than a truly independent 
     accounting standard-setting body will do.
           Sincerely,
                                                Eugene D. O'Kelly,
     Chairman and Chief Executive.

                          ____________________