Monday, October 6, 2008

The Global Fair-Value Fight

The political stampede against fair-value accounting is intensifying outside the United States as much as inside it.

The uproar has U.S. and global standard-setters scrambling to come up with new guidance, examples, and meetings to refute the notion that their guidelines for marking assets and liabilities to market have created the credit crisis. It has also prompted the International Accounting Standards Board to revisit its fair-value rules to make sure they don't stray too far from U.S. generally accepted accounting principles.

Moreover, the guidance from the SEC and FASB may have inadvertently made European companies — in a financial crisis of their own — nervous about their global competition.

French president Nicolas Sarkozy has reportedly been calling for the suspension of fair value in recent weeks and had been expected to address the issue during a summit with the leaders of Germany, Britain, and Italy this past weekend. In a 19-point document for fixing the economy released soon after, the leaders' directive toward accounting standard-setters addressed Europe's ability to compete globally. "We will ensure that European financial institutions are not disadvantaged vis-à-vis their international competitors in terms of accounting rules and of their interpretation," the leaders proclaimed in a joint statement.

They want European financial institutions to have the same ability as U.S. GAAP users to reclassify some assets in their trading book as "held to maturity." While noting that GAAP gives this allowance in rare instances, IASB says it is considering the concept.

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