Standard setters to challenge 'mark-to-Paulson' accounting
Prices established through US bailout plan may mean banks cannot mark up value of their toxic assets
Rules not to blame: John Griffith-Jones
Banks around the world may not be able to mark up the value of their toxic
assets according to the prices established through the US bailout plan, it has
emerged.
FASB chairman Bob Herz
said at
PwC’s
Meet the Experts summit that standard setters were planning to work on whether
the moves – branded ‘mark-to-Paulson’ accounting – would be valid.
‘It looks like the US Treasury is going to be buying back some of these
[assets] using a reverse auction system,’ said Herz. ‘But does that establish
fair value? We’re going to have to start working with the IASB about this.’
Under the reverse auction plans, the bank that submits the lowest bid for the
value of certain assets will be paid that amount by the US government out of its
$700bn bailout pot.
Other banks could use the value as a marker for putting a price on similar
assets, but concerns have been raised that the size of the winning bid would be
greater than the price tag arrived at by mark-to-market accounting.
Politicians appeared this week to have pulled back from a suspension of
mark-to-market this week, but IASB insiders fear the danger is not over yet. The
suggestion to suspend the rules have been met with condemnation from investors
and the profession.
‘Would you have [mark-to-market suspended] just in the US, just in the UK or
just in my office? There would be no comparability.’ said Peter Elwin, head of
accounting and valuation research at Cazenove Equities. ‘How stupid is that?’
Elwin describes a fair value suspension as ‘cartoon physics’.
He said: ‘It’s the same as running off a cliff, but provided you don’t look
down, you can reach the other side.’
Stephen Cooper, managing director and head of accounting at UBS’ global
valuation group, said: ‘Investors know what’s going on. Trying to conceal it now
is certainly something that’s not going to work. It’s difficult to see what else
to do.’
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Ian Wright, director of corporate reporting at the FRC, said that current
accounting rules were working ‘damn well’.
‘The purpose of accounting standards is not to stop a credit crisis… or
ameliorate a credit crisis. Their purpose is to tell people what has happened
over a set period,’ he said.
At a KPMG roundtable senior partner John Griffith-Jones said: ‘The accounting
rules did not cause the current financial crisis and the accounting rules will
not be the solution to it either.’