18th May 2009:

So much has happened over the past few weeks....

.... it is difficult to know where to begin.

One of the main issues I discussed whilst in South Africa was why the FASB relaxed the rules on mark-to-market and what effect this would have. Interestingly, I did not find any support for the FASB approach in South Africa (nor in Hong Kong and China) only a concern that FASB did not seem to have considered the effect of their adopting a different position to the IASB on other countries ? particularly those which have (or are) adopting IFRS in the expectation that it would ultimately also be adopted in the US (either directly or because of the convergence of US GAAP and IFRS).

Everyone I discussed this with agreed that the US approach was intended to enable banks to boost their balance sheets by taking a "softer approach" to the valuation of certain financial instruments. Presumably, the hope was that as a result of apparently stronger balance sheets, confidence would be restored and lending and liquidity would increase. I expressed the view that in fact the opposite might occur. Because there will now be uncertainty over the basis on which these financial assets had been valued, and because they will have been valued at above their market value, I think that there will be less confidence in the balance sheets of those banks that choose to adopt the "new rules" and thus less likelihood that confidence will be restored in the banking system.

It is clear that I am not the only one who thinks this way. On my return to the UK I was sent this article. In this article the chairman of the PCAOB has said they "had no plans to issue further guidance on new market-to-market accounting rules even though the business community has asked for it." As the person who sent me the article said: "From our reading of the article it seems that the decision to allow more flexibility has in fact created ambiguity. Businesses are unsure how and where to apply the rules and need guidance from the FASB. Rather than inspiring confidence in the markets and accountancy industry there appears to be a risk that the rule change will simply lead to more hesitation and indecision." I can only agree.

 Mark to Market  0 Comments May 18th, 2009