Mark-to-market still fair game for politicians
Accounting standards for public companies are for the investors
This is what needs to be remembered when discussing something as important as
suspending fair value accounting.
There has been unprecedented pressure for fair value to be suspended or
removed. These calls switched from financial institutions to politicians.
Republicans wanted it suspended as part of the $700bn rescue package, the
president had wanted it gone and the Tories finally added their views, with
David Cameron rounding on this now most controversial of all standards.
Their intervention, though welcomed by banks, was not welcomed by regulators,
the profession and, most importantly, investors few of whom saw in suspension
a route to solving the credit crisis. Indeed, some see it as accountancy being
used as a political football.
On Friday Europe pulled back from the brink but the situation is extremely
fluid. Politicians may not have moved to kill fair value as yet, but the battle
is not yet over.
Investors and regulators will need to continue re-emphasising the message
because the attack could be renewed. Paulson’s rescue in the US reiterated the
powers of the financial watchdog to suspend fair value.
We do not know at this time whether the right will be used, giving reason to
believe it may yet be delivered a damaging blow. Changing rules in the heat of
the moment is never a good idea, but experts fear a suspension is likely to turn
into a permanent arrangement.
If it is to be a full time change then the alternatives need much more
consideration and no politician seems able to offer a decent replacement at
present.