Friday, April 17, 2009

FASB Eases Fair-Value Accounting Rules Amid Lawmaker Pressure

Talk about old news: FASB, which decides on what the rules should be for Generally Accepte Accounting Procedures, has decided to ease the mark-to-marketrules:
The Financial Accounting Standards Board, pressured by U.S. lawmakers and financial companies, voted to relax fair-value rules that Citigroup Inc. and Wells Fargo & Co. say don’t work when markets are inactive.

The changes approved today to fair-value, also known as mark-to-market, allow companies to use “significant” judgment in valuing assets to reduce writedowns on certain investments, including mortgage-backed securities. Accounting analysts say the measure, which can be applied to first-quarter results, may boost banks’ net income by 20 percent or more.

Much wailing ensued in the Accounting field; FASB should be independent of politics and the breezes of financial fortunes. Whatever. Critics ignore the fact that FASB changes the rules all the time. They hold hearings, weigh the evidence, then decide. Nothing's etched in stone. It's the way the process works. At one time, mark-to-market rules were different than they were before they were changed. They'll likely change again.

The good thing about this is that FASB is looking for ways to improve accounting. When it's clear a rule change may have made a large contribution to the present crisis, it's time to take a look at that rule.

Will this turn the economy around? Hardly. But you can't ignore the fact that since this announcement, the stock market has stopped its steady plunge downward. Is this the end of the beginning or the beginning of the end? Hard to say, of course. But it appears we may have hit bottom. Nowhere to go from here but up.

No comments:

Post a Comment