The Securities and Exchange Commission and the Financial Accounting Standards Board: Regulation Through Veto-Based Delegation

This paper examines the performance of standard-setting arrangements between the Securities and Exchange Commission (SEC) and the Financial Accounting Standards board (FASB). Our focus on the standard-setting process is motivated by the importance of accounting standards. Congress in particular, has criticized the use of veto-based delegation and has argued that the SEC's veto-based delegation scheme gives away too much power to the FASB. WE seek to contribute to this discussion by conducting a model-based analysis of the performance of veto-based delegation in standard setting. Our analysis suggests that, contrary to the allegation that the SEC gave away too much power by delegating standard setting the FASB, the SEC may not have gone far enough in delegating; fully retaining veto power could reduced the effectiveness of the standard setting process.