Seen at Business Insurance:
An independent board that sets U.S. accounting standards bowed to congressional pressure on Thursday and discussed ways to give banks more flexibility to determine the value of toxic assets that have forced billions of dollars in writedowns.
The Financial Accounting Standards Board said its proposed changes to mark-to-market accounting would take effect in the second quarter for most U.S. companies, but early adoption would be allowed for most companies’ first quarter.
Supporters of the changes argue that forcing banks to mark assets to fire-sale prices during a time of inactive markets has exacerbated the financial crisis through writedowns, earnings hits, damage to capital ratios and a reduced ability to lend.
Investors take a different view, saying that more flexibility with the rules would let big banks hide the real value of their toxic assets.
I think part of the reason it’s taken so long for FASB to make this change is that both supporters’ and investors’ views are valid. The concept of a market value assumes that there is actually a fairly free market operating, and when the marketplace is rational. Neither has been true.
I am not fully informed as to the details of the tweaks…which is fine, because I tend to get migraines when I spend too much time looking at the gory details of accounting. However, it would nice for corporate balance sheets to reflect a more realistic view of their portfolios – neither dominated by the depressed values of a panicked market, nor unrealistic optimism on assets whose risk hasn’t been appropriately priced into their value.
As the stock market declined the Banks are suffering from financial crisis. To solve those problems they are taking required steps.