IASB Gets Some Backup Defending Their Turf Against France and Germany

Yesterday we brought up how some German and French insurance were less than cool with the new proposals put forth by the IASB that would make everybody's favorite valuation method, mark-to-market, pretty much mandatory on any investment that isn't a fixed income security (read: that's lots of stuff).

The Finance Ministers of those countries, on behalf of said insurance companies, decided to write a very cordial letter that probably went something like this:

IASB,

We're writing to inform you that the proposals you put out totally suck and you need to move up the review process so they can write more letters that will reiterate how MTM sucks and we're going to continue to write to you about it until we get our way, goddamnit. I think you know how we deal with things in France when we don't get our way and Germany, well, we won't go there.

Peace,

French and German Finance Ministers

Which caused the two professional accounting associations in Europe, the Institute of Chartered Accountants in English and Wales (ICAEW) and the Chartered Institute of Management Accountants (CIMA) to retort with:

Dear French and German Finance Ministers,

First: You guys are talking after the whole WWII thing? France, especially you...whatevs...

Second: BTFO of the IASB's biznass.

Late,

ICAEW & CIMA

'Hands off the IASB,' say institutes [Accountancy Age] Sphere: Related Content

Mark-to-Market Still Unpopular with Companies That Aren't Interested in Reality

Because we know that you were worried that the mark-to-market debate was dead...FEAR NOT. The IASB released proposed amendments to IAS 39 yesterday that will get more than a few companies bent out of shape. The first being French and German insurance companies that are threatening to dump asstons of securities if the amendments are passed.

The long/short of the amendments is that securities would be thrown into one of two groups. Group 1 would be marked-to-market, Group 2 would be held at amortized cost (English Translation: what you paid for it less periodic non-cash reductions).

SHOCKER: the insurance companies don't like Group 1. John Carney at Clusterstock provides the details on the insurance companies' temper tantrum argument:

The German insurers have said this rule would require them to dump the stocks they hold in their portfolio, since the effects of market volatility on their capital position would be unbearable. So far the finance ministers of Germany and France support the insurers, who are calling for softer, more flexible rules. The European Commission is reportedly supporting the IASB.

Sigh.

European Insurers Threaten To Dump Stocks And CDOs Under New Mark-To-Market Rules [Clusterstock]

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Figure This One Out

Once upon a time, the FASB assembled the Investors Technical Advisory Committee (ITAC) to provide investors' view on accounting rules written by the oracles in Norwalk. We're sure that seemed like a reasonable thing to do at the time.

What those wonks probably weren't counting on was the ITAC coming out and pretty much calling the FASB a bunch of lily-livered empty suits that will basically do whatever the likes of Barney Frank and Maxine Waters (oh, the fucking humanity) ask demand order them to do.

Reuters:

Citing a congressional hearing in March over mark-to-market accounting, the investor group said it had "grave concerns about what we believe to be a substantial erosion in the independence of the accounting standard setting process."

At the hearing, lawmakers told FASB Chairman Robert Herz to deliver new guidance on mark-to-market accounting within three weeks or face legislation changing the rule that had forced banks to write down billions of dollars in assets.

FASB bowed to pressure from Congress and the financial industry in early April by allowing banks more flexibility in valuing toxic assets.

In a twist of irony, members of the ITAC include Goldman Sachs and J.P. Morgan Securities. Whose, we'll give credit reluctantly here, bigwigs have come out in support of mark-to-market but are certainly (we may be going out on a limb here) paying money to the American Bankers Association.

The short: We knew the FASB was spineless but now we've got Goldman and J.P. Morgan types calling them out even though they likely pay lobbyists who were fighting against FAS 157.

Let's us know if you get this shitshow to make any sense.

Investor group says FASB's independence has eroded [Reuters] Sphere: Related Content

Review Comments - 6.8.09

Making Up Values - CDO purchased for $9.50 by one Evergreen Fund was valued at $98.93 by another. Appears Reasonable. [Floyd Norris/NYT]

Baltimore: It Really Is That Bad - McNulty can only do so much...[Clusterstock]

FAS 166, 167 Putting Kibosh on Q's Expected This Week; SEC Forms Investor Advisory Committee - FEI Financial Reporting Blog Sphere: Related Content

That Turned Out Well, Didn't It?

The FASB's little rule change from back in April is working its magic. Floyd Norris posts on a Credit Suisse analyst who has calculated that Q1 pretax earnings improved by $4.9B for the twenty financial companies that adopted the rule early. In some instances the increase was greater than 5%. Um, material?

Asset values for five of the twenty companies were marked up to $4.5B from $27M as result of the FASB's caving to Congress clarification of the mark-to-market rule.

Appears reasonable.

Seeking Reality in Bank Balance Sheets [Floyd Norris/NYT]
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What Do We Want? The Right to Value our Level 3 Assets However We Want! When Do We Want it? NOW!

Lots of commentary from all ends of the blogosphere about the end of mark-to-market accounting for the banks. Not exactly the most sexy topic that's out there but it's getting lots of ink because the clowns in Congress are pretty much blaming it for everything but the disappearance of Jimmy Hoffa.

As one commenter put it, "Blaming mark-to-market accounting for the banking sector's woes is like blaming a polar bear stranded on an ice flow for global warming."

Now the best part: God Goldman Sachs is saying that relaxing the rule isn't going to help investors' confidence in the banks anyway. SHEESH.

Throughout this whole dog and pony show, the oracles of double-entry accounting at the FASB really proved themselves to be spineless. Per usual modus operandi, Congress threatens to take a bigger role in overseeing accounting rules and the FASB gets nervous and ultimately bows to the wishes of BFrank, Bingo to the Max, and Ed Perlmutter, who introduced HR 1349 which would form the Financial Accounting Oversight Board, which, if enacted into law, would get to whip the shit out of the FASB whenever it wanted to.

Which I guess would be necessary because when lawmakers forget about the FASB, that allows them to sit up in CT and write rules that actually reflect some transparency. Once those rules become a problem for companies that contribute money to political campaigns, then Congress gets the torches out and beancounter witchhunt is on.

Dartboard valuation seems to be a more fun way for banks to figure out what pieces of paper are worth anyway. Sphere: Related Content

Links 4/2/2009 Mark-to-Market Edition

The Funny Version. This guy is brave (and clearly an accounting dork). [Dealbreaker]

Brits version [Reuters]

Obscure blog version [Skeptical CPA]

The Gray Lady version [Floyd Norris/NYT]

I'll try to get some of my own thoughts (I know you're shaking w/ anticipation) tomorrow. Sphere: Related Content