FASB’s Half a Loaf

(Running Out the Clock)

When a subcommittee of the House Banking Committee held hearings on mark to mark accounting, Congressional intent was very clear.

Either the Financial Accounting Standards Board (FASB) make some common- sense changes or Congress would do it through legislation.

Those hearings were held on Thursday, March, 12.  FASB met the following Monday and proposed a couple of reasonable-sounding modifications and a reasonably- short comment period. Their modifications were inadequate, but they would have been modestly helpful had they not applied only to the future.

Banks have lost billions of dollars of capital unnecessarily and unfairly from accounting rules that never should have applied to commercial banks in the first place. It would have been easy and only fair to allow them to correct the last few quarters. Instead, FASB offers no relief to banks near the brink because of faulty accounting rules.

It makes no sense to me for FASB to "fix" the accounting rules, but limit the fix to future applications only. What can possibly be the argument against correcting the mistakes of the recent past?

If a cure for cancer is discovered, should it apply only to those who get cancer in the future even though the cure is readily available now? If DNA evidence proved the innocence of a wrongly imprisoned inmate, I expect the court would not wait until the "next quarter" to release him. Is the same too much to ask of the high court of accounting?

Comments (2)

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  1. Sergei Primakov says:

    If we want to help the banks, why don’t we just apply regulatory forebearance? If investors really think the banks are solvent, they would have looked through mark to market accounting, and applied historical cost to the banks’ legacy loan positions..

  2. Alex says:

    It goes without saying that all changes in the financial accounting standards should be made through legislation. This means that all standards should be considered by the Congress and changed accordingly. Off course, this should be done if necessary as well as applying to custom essay writing services.