Tuesday, August 11, 2009

Revenge of the Squints

From this mornings' King Report

The American Banker: Revenge of the Accounting Authorities?

The Financial Accounting Standards Board took plenty of heat in April for loosening mark-to-market guidelines, a move that critics assailed as a gift to the financial industry and a nod to political pressures. The FASB's latest idea, however, if seen to completion, would go a long way toward silencing accusations that the rulemakers have gone soft on banks.

Under consideration: an unprecedented proposal to vastly widen the use of mark-to-market accounting, so that it becomes the default method for valuing financial instruments, including loans that banks plan to hold to maturity. If adopted, the rule could set off a new wave of writedowns at a time when investor confidence in banks is fragile at best.

(The SEC and FASB were on track or at least saying that they were on track {see below} to reduce the 'extreme complexity' of the current system prior to Representative Paul 'it would have been the end of our political system and economic systems as we know it' Kanjorski bludgeoned the squints into perpetuating mark to farce.

How will the Nancy Capitalists stop this?

Bray of Pigs versus Revenge of the Squints at the Federales multiplex. -AM

Independent Commmunity Bankers of America

Speaking at a national conference of the American Institute of Certified Public Accountants, the heads of the Securities and Exchange Commission and the Financial Accounting Standards Board discussed steps their organizations are taking to make accounting less complex.

SEC Chairman Christopher Cox said that the SEC, FASB and the Public Company Accounting Oversight Board are looking for ways to make accounting rules and their application more clear, straightforward and transparent. The current financial reporting system is the cumulative product of pressure from different constituencies, he said. While that is a strength, the complexity of modern financial transactions often calls for a detailed set of regulatory requirements. Over time, the resulting level of accounting detail has led to one of the current system's weaknesses, its extreme complexity, he said.

Both Cox and FASB Chairman Robert Herz summarized steps their organizations are taking. FASB is reassessing specific standards in major areas where rules fail to provide transparent information. FASB is working to pull together the existing literature to establish a single source for all GAAP material while trying to contain the growth of new pronouncements from multiple sources.

Herz said that the complexity of the current system provides fertile ground for structuring form-over-substance arrangements to obtain desired accounting outcomes. Complexity has also added to financial reporting costs and burdens, which fall disproportionately on small and private companies and their auditors, he said.

Cox also expressed concern about lack of competition for audit services for large companies. The "Big Four" firms audit 80% of all public companies in the U.S. and their audit clients account for 99% of all public company annual sales. Cox noted that there are many medium- and small-sized accounting firms that provide high quality audit services. He said that regulators have a stake in seeing that their rules promote, rather than restrict, competition in the audit industry.

Chairman Cox's speech is available at www.sec.gov; Chairman Herz's speech is available at www.fasb.org.

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