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seems the recent sec stance on ifrs has trickled down to fasb....

[wsj via google|http://tinyurl.com/r2prl9]

i encourage everyone to leave comments on the website to defend your views...just in case...they seem to be free...for now

[wsj directly|http://online.wsj.com/article/BT-CO-20090914-713539.html#articleTabs%3Dcomments]

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  • Posted on Sep 15, 2009 at 05:16 PM

    FULL TEXT:

    NORWALK, Conn. (Dow Jones)--The nation's top accounting rulemaker suggested Monday the U.S. may end up taking a tougher stance than international rulemakers on expanding the use of fair-value accounting.

    The Financial Accounting Standards Board is weighing a plan to require U.S. companies to value most financial instruments by the ups and downs of the market - notably loans, which make up much of banks' assets. That's more stringent than an International Accounting Standards Board plan to allow non-U.S. banks to value loans at adjusted historical cost - a higher number that would give banks higher shareholder equity than under FASB's plan.

    The two boards have been trying to "converge" their differing sets of accounting rules and work toward one set of rules to apply to companies worldwide. But FASB Chairman Robert Herz said that would be hard in this case, and left open the possibility that it ultimately might not happen here.

    "I hope we can come up with something that both achieves convergence and improves the current state" of accounting rules, Herz said at a roundtable discussion on the fair-value issue at FASB headquarters. "We're obviously keenly aware of the difficulties of achieving both goals together."

    Herz later said in an interview that while FASB would do its best to harmonize its approach and the IASB's, "we also want to make sure we come up with a good answer" to improve financial statements that U.S. investors look to.

    John Smith, an IASB member who also participated in the roundtable, said both boards will try to agree on a fair-value rule, but each has its own process to follow, and "at the end of the day, we won't know until we finish the process."

    While FASB's approach could give banks lower shareholder equity than the IASB approach, Herz and Smith the two boards' proposals would have similar impact on companies' net income - lowering it when fair value declines, raising it when fair value increases.

    The difficulty in harmonizing the two approaches stems from the sharp disagreements over expanding the use of fair-value accounting. Smith called it "a religious war."

    Banks oppose fair value and contend it exacerbated the financial crisis, by forcing them to take big investment write-downs when the market took a downturn that was only temporary. Advocates of fair value say it's needed to give investors accurate information and prevent banks from overvaluing their assets.

    The roundtable reflected those disagreements, as FASB and IASB members debated the issue with bankers, analysts, auditors and investors.

    "As a financial analyst and as someone who manages money, you have no choice but to focus on the fair value of everything," said Tony Sondhi of the CFA Institute, which represents analysts who work with individual investors and which supports mark-to-market accounting.

    But John Gallagher of UBS said the historical-cost approach, more favorable to banks, is "clearly the most appropriate measure" for valuing loans when a bank has a straightforward business model of loaning out money and receiving the steady, predictable payments the loans generate.

    Herz said FASB expects to issue a formal proposal on the issue early next year. The IASB issued its fair-value proposal in July, and expects to have it finalized in time for companies to use it in reporting year-end 2009 earnings, though it wouldn't be mandatory till 2012.

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    • Former Member

      Hi,

      The historical cost does not reflect the economic changes,so does not enable decision making.On the otherhand FV is sensitive to the market conditions;helps to state the assets and liabilities close to their realisable value.Helps with a realistic assessment of the values.

      FV is here to stay.It will be good if the firms proactively adopt FV and taper down the valuation at Historical costs.

      Historical is about actual cost etc.IFRS is about substance over form.It is logical that the substance should prevail.

      My 2 cents

      Regards

      Ramesh

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