Discussion of The SEC's Influence on Accounting Standards: The Power of the Veto

Abstract

Utilizing constructs from theories in political science which were used in those disciplines to measure relative power, Professor Newman's objective is stated to be the estimation or assessment of: (1) the ranking of the SEC and the private-sector policy body in the voting games used to determine accounting standards, assuming a veto role by the SEC; (2) the effect on these rankings of rule and structure changes; (3) the effects of voting blocs in the FASB, which always vote similarly on an issue; (4) the effects of formation of homogeneous groups in the FASB; and finally (5) the relative effects on the SEC and FASB as the probability of affirmative votes increases. All of this is aimed at assessment of a priori power of the SEC vis-ai-vis private standard-setting bodies.1 The author's premise with respect to political power of the SEC is that it has essentially a veto power. What is neglected, however, is the very important power of the SEC explicitly or implicitly to initiate standards, to affect their timing and content as well as to cause some standards not even to reach the voting stage or at least be considerably altered before a final decision by the FASB. There is ample documentation of the ability of the SEC to induce changes in the standards and to affect their contents.