The SEC’s Ultra Vires Recognition of the FASB as a Standard-Setting Body

The Sarbanes-Oxley Act of 2002 conferred upon the Securities and Exchange Commission (“SEC”) the authority to recognize as “‘generally accepted' for purposes of the securities laws, any accounting principles established by a standard setting body” provided that the standard setting body met certain conditions. Two weeks after the Sarbanes-Oxley Act was signed into law in July, 2002 the Financial Accounting Standards Board (“FASB”) and its parent organization, the Financial Accounting Foundation, submitted a letter to the SEC declaring that it met the conditions set forth in the Sarbanes-Oxley Act. Eight months later, in April, 2003 the SEC issued a policy statement that the FASB did in fact meet the Sarbanes-Oxley criteria.While the FASB met some of the criteria, this article argues that it did not meet all the criteria, and therefore the SEC exceeded its statutory authority in recognizing the FASB as a standard-setting body and accepting principles established by the FASB as a standard setting body. This article further argues that the SEC cannot recognize the International Accounting Standards Board as a standard setting body because it, too, fails to meet the criteria set out by Congress