Troubled Senate bailout plan: What’s a troubled asset?

109 pages were not enough to drown dissent in the U.S. House, but maybe an entire ream will be. The latest Senate bank bailout bill fills 451 pages. Despite its length, it features stunning gaps in logic. What else should we expect from roughly 350 pages of legalese written between Sunday and Wednesday afternoon?

Example: The entire bill is aimed at empowering the Secretary of the Treasury to buy “troubled assets,” defined in the excerpt reproduced below. Included among these poor creatures are things they call “other financial instruments” which the drafters forgot to define. Maybe it was intentional? Observe: Continue reading

FASB 157 Update: JP Morgan defends mark-to-market accounting

Some commentators — including Lynn Turner — have pointed out that Section 132 of the bailout draft appears to be an effort by Congress to empower the SEC to immediately suspend mark-to-market accounting, bypassing normal due process rule making with an “order” that would not require public notice or comment. Continue reading

Memo to Congress: SEC already has power to abolish mark-to-market

Fair value accounting is coming under fire, now, from various directions including Newt Gingrich and a number of banks and economists. Apparently, some banks (though not all) think it unfair that Wachovia should be bought for $2.16 billion when it’s balance sheet reports $75.1 billion in net assets. Continue reading

Lynn Turner: Fair value accounting didn’t cause banking crisis

As fur flies in Washington over technicalities of the government’s proposed bank bailout, ordinary mortals may feel left out of the conversation if for no other reason than the rarified vocabulary of the debate. What, for example, is this thing called “fair value accounting”? Why should anyone but accounting geeks care?

One answer comes courtesy of Lynn Turner, former SEC Chief Accountant, who today circulated a message reproduced below with his permission: Continue reading

IFRS vs. U.S. GAAP: Porsche controls Volkswagen

Since the SEC’s announcement of a proposed timetable for implementing IFRS in the United States, a variety of commentators have come forward asserting that IFRS would be “bad” for the United States because, among other things, U.S. GAAP supposedly offers “higher quality” financial accounting standards than IFRS and a smoother, more transparent standards-setting process than the IASB. In fact, the opposite is arguably true. Today’s news that Porsche has upped its stake in Volkswagen to 35.14% offers an illustration. Continue reading

T.J. Rodgers: FASB regulates to death wealth-creating companies

U.S. accounting standards setting is truly out of control. Despite the constant drumbeat from special interests — mostly analysts and retirement plans who demand ever-increasing complexity and sophistication in accounting standards — what we get in the form of new accounting pronouncements in this country is largely indecipherable geek-speak. Continue reading

Why does the FASB hide its audio archives?

When it comes to understanding the rationale of board or committee decisions and holding board members accountable, nothing beats a video or audio recording of the meeting. Meeting minutes, by contrast, are notorious for doing more to obfuscate and obscure than inform. Continue reading

Free Enterprise Fund v. PCAOB: Kavanaugh dissents

Today, a three-judge panel of the D.C. Circuit Court of Appeals handed down a much-anticipated 2-1 decision in Free Enterprise Fund v. PCAOB.  The panel, in my view, reached the wrong conclusion, holding in essence that the PCAOB can rule over the world of U.S. accounting and auditing while immune from constitutional checks and balances.  The crowning irony is that the PCAOB, supposedly designed to promote accountability, is itself so unaccountable for its actions.

Likely, the case will be reheard en banc and/or decided by the Supreme Court.  Meanwhile, the best, most coherent reading is found in Judge Kavanaugh’s eloquent 57-page dissent: Continue reading

FASB: SocGen’s Kerviel accounting was right?

Société Générale has been treated to all kinds of abuse for recognizing in 2007 Jerome-Kerviel losses “incurred” in 2008 just after the 2007 year-end cutoff. Floyd Norris has been especially critical of the French bank’s use of the “true and fair view” exception which he calls an IFRS “loophole.”

Well, as they say, what goes around comes around. In the Alice-in-Wonderland world of financial reporting standards setting the current U.S. financial accounting standards-setter (the FASB) is on the verge of effectively ratifying SocGen’s 2007 treatment of those Kerviel losses. This ratification comes in the form of an Exposure Draft — for lay readers, an “ED” is a draft of a new accounting standard — on the Disclosure of Certain Losses and Contingencies. More on that below. Continue reading