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Mark to Market Watch
No Fair
(Page 2 of 2)
-Statement of Cash Flows
-Marked to Market Balance Sheet.
Thus we would have multiple perspectives on asset values, just as cash flows and accrual accounting are multiple perspectives on operations. But we wouldn't have accounting feeding the downward spiral of a panic (or for that matter, helping inflate a bubble).
Faced with the current effects of its fair value theory and consequent criticisms, the FASB has redoubled its commitment to the theory and announced it wants to take it even further. Thoughtful government policy makers are unlikely to share the view that "I must follow my accounting theory, though the heavens fall." Somebody needs to simply overrule FASB. If the SEC won't do it, then who? Well, FASB is a government-sponsored entity, which ultimately works for and has its funding mandated by Congress.
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Steve| 12.22.08 @ 8:07AM
Hear, hear. Just disclose, please, and let the chips fall accordingly.
As a professional bean-counter for multiple decades, no one appreciates the theoretical, as poosed to concrete, nature of accounting more than I do. Accounting consists of assumptions piled upon assumptions, sorted according to elaborate timing theories and academic conjecture.
Don't get me wrong; some measure of finance has to be taken and accountants give it their best shot. But to assume an excruciatingly high level of exactitude is laughable. Except when (FAS 157) accounting dogma results in the willy-nilly destruction of institutions and capital -- then it is not laughable, but pathetic.
This whole crisis has seemed so avoidable to me; but don't look to the accountants to fix it. The post-Enron lynching of Arthur Andersen by Congress effectively neutered the profession. As in so many areas, some of the blame can be traced back to the fools in Washington. But the gutlessness of accountants weighs heavily, as well.
Bob| 12.22.08 @ 8:16AM
This is exactly the right solution -- one that I've also proposed on these blogs. It is a way to achieve "fair value accounting" without being so simplistic as to overstate the variability of securities that are not that marketable. Kudos.
Pecos Pete| 12.22.08 @ 9:54AM
Excellent recommendation. Good commentary. Discuss the problem, provide a solution.
As a retired CPA I always thought the AICPA and FASB were cowards protecting the largest CPA firms where, just like lawyers and brokers, the partners were largely interested in how much money they could take home.
Adding a Mark to Market Balance Sheet is too simple a solution for knot heads. But is in the best interest of accounting firms as it adds one more item for billing hours. Shouldn't add any costs to companies as they are already doing the work to mark their assets to market.
I've never been a fan of the income statement except when done in detail to disclose the components of income and expenses. The cash flow statement seems to me to be a better indicator of value.
taxdoc| 12.22.08 @ 11:31PM
Geez - it's hard to find anything in the article that comes close to true... I wouldn't accept it from a student taking a first course in anything. For example, the FASB is NOT a government-sponsored entity. It is privately funded - precisely to avoid the kind of political interference that you propose. How hard is it to visit the FASB site and learn about how it is funded?
http://www.fasb.org/faf/faf_info.shtml