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30 Sep 2008
The Financial Accounting Standards Board is in talks with the USA’s Securities and Exchange Commission (SEC) regarding the need for more guidance on fair value accounting rules.
A person familiar with the matter told Reuters additional guidance relating to the accounting rule, known as FAS 157, might or might not result from the discussions.
SEC spokesman John Nester said the agency was ‘working closely with US and international regulators and standard setters on the issues related to fair value’.
However, it was unclear whether the SEC and FASB would issue guidance before the end of the third quarter, ending today.
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FASB Fair Value
The proposed $700 billion bailout will be just one of more bailouts to come unless the bailout package includes the ELIMINATION of market to market - the elimination of fair value accounting.
Fair value accounting was a bad idea in the 1920's and was one of the causes of the Great Depression and fair value accounting is one of the top 3 factors in causing the financial crisis today.
Enormous profits will be made in a few years from the unrealistic write downs of long-term assets today, but the taxpayers will pay for those profits.
Posted by: Renee Harwell, ASA, CPA/ABV, 30 Sep 2008 | 00:00
FASB fair value is WRONG
As written, FAS 157's focus on the "Exit" price being the fair value is much of the reason for today's bank failures. It is bad accounting principles and ranks up there with the horrible treatment under FAS 140 of subsidiaries that can be "qualified" and then deconsoliated. NEITHER one of these FAS issuances make a lick of sense.
Posted by: MornignJoe, 30 Sep 2008 | 00:00
How does a standard change value?
I have read the arguments of how FAS 157 caused the crisis, but I don?t understand how that can be true considering the transparency issue. Perhaps this is wrong, but if the value of an asset on the books of a company is $100, but the only price in the market is $20, it sounds like the value is correct and the business made a bad decision. FAS 157 says use that $20 value so that the market rules over the dreams of the people that paid $100 for the asset in the first place. Regardless of the value on the books, the asset remains the same and the market remains the same, and that level of transparency should be rewarded.
No matter how you record the asset, the value is still determined by the market. What?s the problem with transparency?
Posted by: Mark Eckman, 30 Sep 2008 | 00:00
FAS 157
While I agree w/ the comments that FAS 157 is a little over-reaching w/ the "exit" price as the reference point--we need to value these financial instruments somehow. Everyone knows that, in the case of CDOs, they have fallen out of favor as an investment--and consequently, that's resulting in the punishing devaluation. However, that's not tauntamount to saying they're worthless. You'd have to admit that there is some intrinsic value to them--unless every single one of the mortgages in the basket are bad. So just because GAAP says they're worth X, doesn't mean they're really worth that. I guess I'm also saying that if we're going to trash FAS 157--that's OK--but then let's come up w/ some other method. You'd have to admit we need to reflect there value at something other than cost. Up to now, FAS 157 seemed to work OK for valing most assets. It's just that we're in strange times, and that's why FAS 157 seems so onerous.
Posted by: Tim, 30 Sep 2008 | 00:00