FASB Discovers Own Cojones

Make that belatedly.

America’s previously neutered accountants — traditionally, green-visored chickenshit-cowards who have rolled over for their belly rubs from America’s CEOs and CFOs, giving them all of the bullshit they asked for over the past 2 decades — seem to be developing a spine of sorts.

Recall that in the midst of the credit crisis, the Accounting Standards Board were knuckled under by Congress. FASB now seems to be regretting their act of political cowardice. Here’s Jonathan Weil:

“Turns out America’s accounting poobahs have some fight in them after all. Call them crazy, or maybe just brave. The Financial Accounting Standards Board is girding for another brawl with the banking industry over mark-to-market accounting. And this time, it’s the FASB that has come out swinging.

It was only last April that the FASB caved to congressional pressure by passing emergency rule changes so that banks and insurance companies could keep long-term losses from crummy debt securities off their income statements.

Now the FASB says it may expand the use of fair-market values on corporate income statements and balance sheets in ways it never has before. Even loans would have to be carried on the balance sheet at fair value, under a preliminary decision reached July 15. The board might decide whether to issue a formal proposal on the matter as soon as next month.”

The mere fact these gutless wonders are even considering Fair Value accounting is a massive improvement. If the lobbyists and bought & paid for Congress don’t interfere, we may actually expect to see significant changes:

“The scope of the FASB’s initiative, which has received almost no attention in the press, is massive. All financial assets would have to be recorded at fair value on the balance sheet each quarter, under the board’s tentative plan.

This would mean an end to asset classifications such as held for investment, held to maturity and held for sale, along with their differing balance-sheet treatments. Most loans, for example, probably would be presented on the balance sheet at cost, with a line item below showing accumulated change in fair value, and then a net fair-value figure below that. For lenders, rule changes could mean faster recognition of loan losses, resulting in lower earnings and book values.

The board said financial instruments on the liabilities side of the balance sheet also would have to be recorded at fair-market values, though there could be exceptions for a company’s own debt or a bank’s customer deposits.”

That is a huge correction to a previous outrage.

Remember, mark to market accounting hasn’t caused these problems — It merely exposed them to bank investors.

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Previously:
How Congress Betrayed Investors to Help Banks (April 3, 2009)
http://www.ritholtz.com/blog/2009/06/how-congress-betrayed-investors/

CDS/FASB (April 2nd, 2009)
http://www.ritholtz.com/blog/2009/04/cdsfasb/

What Does the FASB Proposal Mean for Financials? Evolution or Revolution? (March 18th 2009)
http://www.ritholtz.com/blog/2009/03/what-does-the-fasb-decision-mean-for-financials-evolution-or-revolution/

Sources:
Accountants Gain Courage to Stand Up to Bankers
Jonathan Weil
Bloomberg, July 23 2009
http://www.bloomberg.com/apps/news?pid=20601039&sid=a5BsXz90CMso

FASB Grows A Pair? Watch Those Stocks!
Karl Denniger
Market Ticker, July 23. 2009
http://market-ticker.denninger.net/archives/1255-FASB-Grows-A-Pair-Watch-Those-Stocks!.html