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Today's Government Takeover: FASB

Posted by Tim Reason | CFO.com | US

September 29, 2008 1:23 PM ET

It's one thing to debate the merits and application of fair value accounting. It's another to give the SEC unfettered authority to suspend an accounting rule — in this case, FAS 157 — for "any issuer" and "with respect to any class or category of transaction" if the Commission deems it in the public interest.

So much for 'generally accepted accounting principles' if the SEC can pick and choose who has to accept them.

The SEC is also to conduct a study on FAS 157, which shall include a review of how FASB develops accounting standards, "the advisability and feasibility of modifications to such standards," and "alternative accounting standards to those provided in such Statement Number 157."

Coming hard on the heels of Senate hearings into FASB's latest effort to fix securitization accounting, such a heavy-handed interference with accounting standards has to make one wonder about the future of International Financial Reporting Standards in this country. Sometime before the end of the 90-day deadline for the SEC to submit its "administrative and legislative recommendations" on FAS 157, surely someone in Congress will come to the disagreeable realization that allowing accounting standards to be written overseas would make such interventions much harder in the future.

To paraphrase Franklin D. Roosevelt (whose name seems to be coming up a lot lately), GAAP may be a bitch, but at least it's ours.

Comments (4)

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What happens if IFRS becomes your GAAP "bitch"? Or will this happen do you think?

Clearly I think there should be a regulatory override in times of need but this should be temporary I think while issues are being more fully considered. I think we have known about the problems of arriving at fair values in illiquid markets for some time now and people are asking for a solution (answer?).

"The IFRS Exorcist"

Posted by Darla Sycamore | September 29, 2008 02:53pm

Is GAAP an art or science? If it is an art then it is subjected to various interpretation; and if it is a science then you are compelled to accept the reality of the situation.

On the FMV issue, where is the element of time? On this real estate debacle, do investors believe that over time the values will come back. Has GAAP taken into consideration the peak and valleys of the economic/ market horizons, or we are two impatient to wait? (AND IF WE ARE WILLING TO WAIT THEN TEMPORARY BAIL OUT SCHEMES ARE NEEDED TO FILL UP THE VALLEYS OF THE ECONOMIC HORIZON AND REAP THE REWARDS DURING THE PEAK OF THE ECONOMIC HORIZONS)

Perhaps reporting should not be ABSOULUTE AS OF GIVEN DAY but give the benefit of the doubt that market values would come back. And perhaps this is applicable to the real estate market and not to other type of industry. Shall we be selective? Perhaps PRO FORMA reporting should be entertained to provide the bright and not too bright and gloom scenarios. LET THE READERS BE AWARE THROUGH PRO-FORMA INFORMATION.

Posted by Thomas M. Ferrer | September 29, 2008 10:03pm

With the advent of the SEC making decisions on when we move away from GAAP to International Standard we see a slippery slope. Now we see the stepping on GAAP, even temporarily. The issue of the FASB and AICPA becoming irrelevant in this regulatory environment puts the accounting profession is a very difficult, certainly not independently regulated position.

My big question is where was the oversight when companies are trading synthetic securities in the first place? What happen to asset based securities?

From the Fannie Mae and Freddie Mac abuse to Congress's desire that all are created equal and should have a house no matter what their income, to Wall Street just looking to make money at every turn, this crisis is based in a lack of core principles.

I think the spiral of SEC over FASB has just begun!

Posted by Diane Dutton | September 30, 2008 02:34pm

I think Tim has posted a great blog piece, and Darla and the others have added great insights.

Congress is now on record as pretty much saying that accounting rules should pass a litmus test of being good for the country. If an accounting rule does not seem to be in the public interest, then a change is going to be forced. Congress lacks to brainpower to understand accounting rules, but since when has anyone every attribute great mental prowess to that group of crass politicians.

Darla, I don't think that this means Congress wants IASB to be its bitch, to lie down and get f*cked on demand. IFRS would never be that easy. Rather, I think that a knowledgeable observer can project many and frequent IFRS carveouts after the switchover is made.

Moreover, I think a logical conclusion is that the SEC is going to be made directly responsible for the USA version of IFRS eventually in place for U.S. companies. There probably will be a separate U.S. board, similar to PCAOB, within the SEC framework.

Where now we have a "private" and "independent" FASB (which has always been the SEC's friend with benefits), the new government agency will have board members appointed by the SEC. It could be subject to a composition limit of 2 accountants. Sarbanes Jr. will draft the legislation for its creation, thus carrying on the family tradition.

To carry your metaphor to an extreme, since the IASB can't function as our bitch, we'll just have to create our own inflatable doll.

Posted by | October 02, 2008 04:02am


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