Did Accountants Really Let Us Down? Floyd Norris Misfires on FASB & IASB Role in Recession

Who ruined your retirement portfolio? In his September 10, 2009 New York Times’ column, Accountants Misled Us Into Crisis , Floyd Norris points the finger at standard-setting accountants at the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB).

Norris appears convinced that if the FASB and IASB had written the “right” accounting standards the “right” way (especially to require banks to report their assets at “fair” value), banks could not have become so weak as to threaten the financial system.  If only reality were that simple.  Four factors argue against Norris’ view. Continue reading

Not even WSJ reporters get FASB accounting standards. Why write more of them?

For an eloquent illustration of how accounting innovations like FAS 157’s “fair value” regime are way beyond even above-average American financial readers, try Michael Rapoport’s May 1, 2009 article entitled
New FASB Rule Aims to Clarify ‘Net Income’.

Rapoport, trying to capture the meaning of the new SFAS No. 160, stumbles over one of the most basic concepts in the accounting literature — that “minority interests” in consolidated financial statements reflect the fact that “parent” companies don’t really “own” 100 percent of the assets or income of “subsidiaries” except those they wholly own. Continue reading

Comments on FASB’s fair value amendment reflect FAS 157 distress

Lenders have been hammered by the pathologically procyclical impact of FAS 157’s mark-to-market regime.  Hardly surprising, therefore, that banks and credit unions came out in force to support the latest FASB “clarification” of FAS 157.  Some other commenters, mostly from the “analyst” community, emphatically disagree.

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Barney Frank to FASB: Quit pretending to so much reality and certainty in fair value accounting!

Today, in congressional action sure to give every internal auditor and financial analyst recurring nightmares, members of the U.S. House Capital Markets Subcommittee demanded that the Financial Accounting Standards Board (FASB) demonstrate greater flexibility and speed in changing market-to-market (or “fair value”) accounting rules in the face of today’s financial industry crisis, or else. Much of the commentary came across as a congressional call for an IASB-like principles approach in place of the FASB’s detailed rules-based approach.

House Financial Services Committee Chair Barney Frank (D-Mass) and Capital Markets Subcommittee Chair Paul Kanjorski (D-Pa), each in his own way, stated that mark-to-market accounting must be applied differently to different companies and industries based on their respective circumstances that changed must happen now, not later after more “academic” study. In his opening statement, Kanjorski declared:
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For the good of investors, FASB should withdraw its loss contingencies disclosure draft

I have long suspected that “protecting” America’s financial statement users from “bad” financial statements is a futile task.  The FASB’s efforts at revamping its Statement 5, on loss contingencies, confirms the suspicion.  It’s not that we have too many bad financial statements.  It’s that the users — including some who hold advanced business degrees and certifications — lack common sense.  Common sense may also be in short supply at the FASB. 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

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