The New Crisis Report: What's in It for CFOs?

Just one of my questions from ignorance but could this 'flexibility to choose when to apply fair-value standards to financial instruments' be an issue that's still going to come to a head at some point? - MBC


http://www.cfo.com/article.cfm/14155093/1/c_2984368

"...A global advisory group released 37 pages of recommendations on Monday discussing how regulators, accounting standard–setters, and — to some extent — CFOs can help prevent the next financial crisis, and work to fix existing "weaknesses" in accounting standards..."

"...Independence was a hot-button issue during the past year, as standard-setters on both sides of the Atlantic were bullied by special interests and politicians to relax fair-value accounting rules... "Accounting rules of the highest quality — written by independent standard-setters — will help to restore investor faith in the fairness and integrity of financial markets," (said) Goldschmid, a former SEC commissioner..."

"...The reach of undue influence played out on the world stage last November, when German chancellor Angela Merkel, French president Nicolas Sarkozy, and other global policymakers jumped into the fray on fair-value accounting. As a result, the IASB ignored its normal rule-revision process and rushed out guidance that gave banks and other companies more flexibility to choose when to apply fair-value standards to financial instruments.

The expedited process came after banks lobbied heavily for the change — claiming that fair-value accounting led to excessive write-downs — and European policymakers threatened to pass laws that essentially would have given the banks the accounting treatment they sought. By March, members of Congress were vilifying fair-value accounting as the cause of the financial crisis, and FASB quickly pushed through its new guidance on valuing assets..."

"..."What would be wrong, however, would be to suspend due process and take direction from Congress or business interests who say, 'use this accounting method because that's what we want,'" asserted the former SEC official..."

"...the FCAG asked the standard-setters to "reconsider" the appropriateness of including credit risk when measuring the fair value of a liability. At issue is an accounting rule oddity that allows companies to book a gain when their credit rating sinks. Further, the group is prodding the accounting boards to continue consulting with bank regulators concerning consolidation and derecognition issues, especially as they pertain to off-balance-sheet transactions. From the FCAG's perspective, the way financial instruments are treated under accounting rules may also affect regulatory capital, and therefore robust risk disclosures should be made to investors..."