... a Lumberjack!
Posted on 04/11/2008 5:36:40 AM PDT by TigerLikesRooster
Accountancy rules broken ‘irretrievably’
By Jennifer Hughes in London
Published: April 9 2008 22:30 | Last updated: April 9 2008 22:30
Rules regarding how banks account for off-balance sheet interests are “irretrievably broken”, a senior group of international rulemakers has warned.
The rules, which have allowed trillions in assets to escape close scrutiny, have come under attack in the wake of the credit crisis as banks have been forced to disclose huge losses on these holdings.
But a report by a high-level group of accountants has warned that completion of the current overhaul of the rules would not be possible in the near future.
“Completing a final standard by mid-2011 will be extremely difficult, perhaps impossible,” says the report seen by the Financial Times and prepared by board members of the US-based Financial Accounting Standards Board and the International Accounting Standards Board.
While the report does not yet represent the official view of the accounting bodies, it is a sign of the turmoil within the industry in grappling with the off-balance sheet issue.
Accounting standard setters are already under pressure for their support of marking assets to current market prices – a practice that has resulted in billions in writedowns and affected banks’ profitability seriously.
The Financial Stability Forum, a global body of regulators and central bankers, has asked the IASB and its US counterpart to consider the issue as a matter of urgency. Accounting standard setters are in the throes of discussing how to respond.
However, the report by the high-level group of accountants says the project to overhaul current rules on off-balance sheet interests has lost momentum because of staff turnover and “relative inexperience”.
It also urgently recommends that some senior figure be put in charge of the project, warning: “We cannot afford the luxury of waiting for the newly assigned staff to get up to speed.”
The report authors include Jim Liesenring and Tom Linsmeier, board members of the IASB and FASB, respectively, and Sue Bielstein and Wayne Upton, senior technical directors on each body.
Unusually candid for the accounting world, the paper was prepared for a joint board meeting of the two groups this month.
Last week, the FASB took steps towards a short-term remedy in the form of a plan to eliminate a particular off-balance sheet treatment that is used by many banks for mortgage loans.
Ping!
... a Lumberjack!
I don’t know. Sounds like strict accounting practices might hamper business, so just let it be. Oh, and be sure to have Unclse Sugar bail them out when the chickens come home to roost.
A CPA here: To me accountancy rules are borderline smoke and mirrors. There are so may ways to “account” for something according to Generally Accepted Accounting Principles. I used my FASB rules book in college for a beer coaster because they are to convuleded to read.
The first principle of accounting is conservatism. Once that is lost it doesn’t matter what particular rules are made. It is clear from these scandals that the accountants were making what they new at the time to be risky statements.
So Mark-to-Fantasy is here to stay. Does this mean we do a sequel to Japan, with a couple of decades of stagnant GDP growth?
Rules regarding how banks account for off-balance sheet interests are “irretrievably broken”, a senior group of international rulemakers has warned . . .
Millions or billions in risky mortgage loans were sold to unsuspecting investors. Who bought this garbage _________? Foreign investors, foreign governments and state pension plans in the U.S. are at the top of the list. There are rumors on Wall Street about mortgages being sold several times: In other words, there may have been major bank fraud here.
It sounds like accounting 'professionals' are urging lawmakers to sweep this scandal under the rug. 'We need to do something,' they say, 'But don't look over there.'
That is why taxpayers must strongly object to a wholesale whitewash and a total bank bail-out. A real investigation must take place. Otherwise taxpayers will be saddled with this mess for generations while the crooks sail off into the sunset. 'Nuff said.
The rules are the rules are the rules. If you can't understand the accounting standards, you have no business performing attestation services. Best leave it to the professionals...
Slim
We’re likely going to see a period of deflation - in housing prices.
The deflation was more widespread in Japan.
It was just yesterday that Bernanke was saying the difference between the Japanese experience and our likely experience was that the Japanese wouldn’t kill the banks with bad balance sheets. What he ignores is that while this was state policy in Japan, these stupid accounting “rules” that allow this crap to exist off the balance sheet amount to exactly the same thing — banks that should go under, or should have to take massive write-downs on non-performing assets, will be able to keep those assets in the closet with their crazy Aunt Millie for years and years, then bring them out at their convenience.
The central issues in this mess are mark-to-model and leverage on mark-to-model assets. Both should be banned outright, but no one has the testicular fortitude to tell bankers “Spare me your idiotic financial gibberish. These assets are either worth something, or they’re not.”
You are right. I was referring to price of everyday consumer goods.
Uh that was in COLLEGE. I am very respected as a CPA here in NC. The rules ARE clouded and subject to professional judgement. and I left working in a public firm. I now work in industry and will never go back. I do have utmost respect for the rules.
They always say, "These assets are worth what they were when the current crisis die down. Please be patient.":-)
Arthur Andersen’s (Enron) downfall here...
http://news.bbc.co.uk/1/hi/business/2049237.stm
Thanks to all posters. Fascinating.
Conservatism, unfortunately, is NOT the first rule anymore. I have a long ago archaic accounting degree, was a state bank examiner for 25 years, and am now a banker. The IRS and the SEC in the last few years have finally pressured the Federal regulators into implementing FAS5 and FAS 114 to account for loan loss reserves. Most banks conservatively overstated the Allowance for Loan and Lease Losses (ALLL) as kind of a rainy day capital account against unexpectedly heavy loan losses. Can’t do that anymore. You are hiding income that can be taxed and understating earnings, according to the IRS and SEC. Federal bank regulators finally caved in and now it is an “unsafe and unsound” banking practice to keep too much in your ALLL. What kind of convoluted bass ackwards thinking is that for a bank regulator like the FDIC, which was for many years jokingly called an acronym for “Forever Demanding Increased Capital”. Some of that “extra capital” would probably come in very handy during this subprime lending crisis. But no, modernizing our accounting practices is better . . . BS!!!!!!!!!!!
Reminds one of Enron.
If you take away one thing from this thread, take this:
I assure you there is nothing unsound in the subject referred to in the link above. There are enormous efficiencies to unlock that are simple to explain when not interrupted and disrupted by Beltway lobbyists who are trying to preserve their cozy fiefdoms. Please read, study and ask questions.
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