A battle is brewing on Capitol Hill over who should control accounting standards that are followed by public companies.

The House Financial Services Committee continues to mark up its proposed Financial Stability Improvement Act, and now a controversial bipartisan amendment has been added to the package to assign a new overseer to the Financial Accounting Standards Board. Ed Perlmutter, a Democrat from Colorado, and Frank Lucas, an Oklahoma Republican, have proposed that FASB should be moved under the authority of the Financial Services Oversight Council, which the bill aims to create.

The Financial Services Oversight Council is expected to become a kind of super-regulator representing a number of regulatory agencies that will be tasked with spotting and heading off big systemic risks. The council will be made up of the heads of the Federal Reserve, Treasury, the Securities and Exchange Commission, and other banking regulatory bodies. Currently, FASB falls under the sole authority of the SEC.

As the American Bankers Association calls for support of the amendment, the American Institute of Certified Public Accountants, the Center for Audit Quality, and the Chartered Financial Analysts Institute, among others, are beating the drum for greater independence for the FASB. Banks have been frustrated particularly through the economic crisis that accounting rules have exacerbated their financial woes; investor advocates say accounting rules are meant to give a transparent view of a company’s financial health and shouldn’t be subject to banking or political tinkering.

The banking lobby has particularly railed against FASB’s requirements for fair value, or “mark-to-market,” accounting as banks have struggled with a dearth of demand for their most toxic assets. Banks say the plunge in reported book value has made it difficult to comply with regulatory capital requirements. “Having seen how procyclical mark-to-market accounting standards have undermined bank capital, it is clear that the FSOC must have oversight over FASB if the mission of the systemic regulator is to be successful,” the ABA wrote in a plea for support of the amendments.

Cindy Fornelli, executive director of the CAQ, said in a press briefing that bank regulators have other means at their disposal to manage regulator capital and shouldn’t try to achieve it by regulating accounting rules. “Financial, accounting, and auditing standards are for the benefit of investors so they can have the information they need to make valid investment decisions,” she said. “Having banking regulators be part of that process and have veto power over those standards is not a good model.”

AICPA President Barry Melancon echoed the concern. “The primary objective of accounting standards is to meet the needs of capital market participants,” he said. Banking regulators, on the other hand, “look at safety and soundness of financial institutions. Those should not be confused.”

Fornelli noted the realignment of FASB under a political body would weaken the U.S. demand for more independence in international standard setting, an often-stated consideration for U.S. adoption of international accounting standards. “It’s hard for us as a nation and a market to be critical of the politicization going on elsewhere in the world when I fear we are setting ourselves up to go down that same path,” she said.

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