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Thursday, April 2, 2009

Accountants ease loss rules to please bankers, Congress

Just in time for first-quarter earnings, the accounting profession has agreed to ease its controversial "mark to market" rule -- FASB 157 -- caving in to pressure from banks, investment bankers, and U.S. Rep. Paul Kanjorski, D-Pa., and other influential members of Congress.

"U.S. accounting rulemakers on Thursday agreed to make adjustments to a proposal to change mark-to-market accounting rules concerning when transactions would be considered distressed," says Reuters here. Bloomberg story here. Reuters: "The Financial Accounting Standards Board said its proposed changes would take effect in the second quarter for most U.S. companies, but early adoption would be allowed for most companies' first quarter.

"The board, at a meeting in Norwalk, Connecticut... said the objective of mark-to-market, or fair value accounting, in inactive markets would be to determine what an asset could fetch in an "orderly" transaction between market participants," instead of what the asset is actually worth, today.

Short-term, this will allow some big companies to hide losses in their investment portfolio. Long-term, accountants and investors warn it could reduce confidence in the value of battered U.S. companies.

The Investors' Working Group, headed by ex-SEC chief William Donaldson and ex-CFTC regulator Brooksley Born and including Bill Miller of Legg Mason and other big-league money managers, called itself "concerned and dismayed by the lack of normal due process and the accelerated timeline" for the decision, adding, "To create high quality accounting standards, it is critical that the process be independent and free from political pressure... These new FASB proposals...  undermine investor interests and weaken their ability to make sound investment decisions."

NEW: "We're sympathetic; users need more pratical guidance" on how to value unwanted securities. "But there's been a lot of political pressure" to make bigger changes in time for first-quarter numbers, said Keith Peterka, senior manager in the professional-standards group at national accountant Mayer Hoffman McCann PC's Plymouth Meeting office. "FASB had already issued some really good guidance about 'inactive and illiquid markets'. We think it would have been best to stay with that. The new position may impair the progress toward global standards. We encourage (FASB) to give more examples, more practical guidance." Not mess with basic principles.
Posted by Joseph N. DiStefano @ 10:59 AM  Permalink | Post a comment
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About Joseph N. DiStefano
Joseph N. DiStefano writes this blog to feed his PhillyDeals column in the Philadelphia Inquirer. Joe has been a member of Bloomberg LP’s New York Finance Team, wrote the book “Comcasted,” taught writing at St. Joseph’s University, and studied economics and history at Penn. Reach Joe at 215-854-5194 and JoeD@phillynews.com
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