|
|
03 Apr 2009
The US standard-setter has relaxed fair value accounting rules for bank assets in a move that allows them to ignore market prices where the market for those assets is judged to be illiquid or distressed.
In a bid to reduce pressure on banks carrying toxic assets on their balance sheets, the Financial Accounting Standards Board also voted to allow banks to book smaller losses on impaired assets that are listed for sale.
US markets reacted strongly, welcoming FASB's decision. The Dow Jones Index topped 8,000 for the first time since 9 February. The cheer spread to the UK, where the FTSE 100 rose 4.3 per cent to 4,125 in the first time it has closed above 4,000 for more than a month.
However, the move is likely to alarm investors who have argued that relaxing fair value accounting rules will make company accounts less transparent, and possibly misleading.
The relaxation of the fair value rule follows heavy lobbying by banks and politicians who have blamed the rule for worsening the economic crisis by forcing banks to announce huge write downs in assets.
Together, US banks hold trillions of dollars of mortgage-related assets, which have not been traded for 18 months. There have been a few trades at deeply discounted prices, forcing banks that hold these securities to make massive write-downs on the value of their portfolios.
Futher reading:
You may also like
Search thousands of financial jobs:
Search thousands of financial jobs:
Careers
Search for jobs
Click to search our database of all the latest accountancy roles
Create a profile
Click to set up your profile and let the best recruiters find you
Jobs by email
Sign up to receive regular updates with the latest roles suitable for you
Briefings
By looking at the reasons supplier statements became unfashionable, and the reasons why it is different today, this paper delves into the many benefits that can be obtained by automating the process.
Having a real and true view of your organisation’s current financial position, and having the right systems and processes in place, will ensure that you can make strong choices and are ready to capitalise on opportunities
AccountancyAgeInsight is a frequently updated resource centre for finance professionals, offering a free and easy-to-use digital library of briefings, white papers and other information resources. 
Visitor comments Add your comment
Flip-flop treatment
Why on earth these accountants were pushing for "mark-to-market" fair value rules during the bullish time few years ago but now going for a totally reversal to suit the downturn? This will create uncertainty in the market and promote variety of accounting treatments at the time when these accountants are also talking about global convergence of accounting standards.
http://www.free-information-club.blogspot.com/
Posted by: CS, 03 Apr 2009 | 00:00
It makes you wonder...
The markets surge after a change in the accounting rules although there has been no change in the underlying economic conditions... perhaps people should spend more time understanding the accounting rules and less time tinkering and reacting.
Posted by: Anon, 03 Apr 2009 | 00:00
It makes you wonder...indeed
Perhaps people should spend more time understanding accounting and less time tinkering and introducing asinine accounting standards. We would not be in half the mess that we are now if we had not had to contend with the delusional concept of marking to completely non existent markets.
The market rise may have reflected an appreciation of the return of some common sense.
Posted by: AnonToo, 05 Apr 2009 | 00:00