FASB may extend fair value to loans

The Financial Accounting Standards Board (FASB) decided at its August 13 meeting to move ahead with a proposal to extend mark-to-market accounting (FAS 157, Accounting for Fair Value) to loans and other securities. The FASB is expected to release a formal proposal, or "exposure draft," on the changes in the first half of 2010, Reuters reports. 

 
The standards board, which appeared to bow to the will of Congress and the banking industry in April when it permitted banks to exercise “significant” judgment in their valuation of traded securities, has taken a tough stance by proposing to apply mark-to-market principles to loans.
 
FASB’s current rules let lenders carry most of the loans on their books at historical cost, by labeling them as held-to-maturity or held-for-investment. Loan losses are recognized only when management deems them probable, although losses may be foreseeable, according to an analysis of the proposal in Bloomberg.com. Applying current market values to loans could speed up the recognition of loan losses, resulting in lower earnings and reduced book values. While the proposal makes the balance sheet presentation simpler, it would involve complex changes in the income statement.
 
FASB Chairman Robert Herz said at the meeting the FASB has a long process ahead of it and did not expect real changes to be in place before 2011. FASB is working with the International Accounting Standards Board (IASB), on a “comprehensive” plan for presenting financial instruments, Herz said. “We’ve got a lot more work to do.”
 
IASB has proposed allowing companies to continue carrying many financial assets at historical cost, including loans and debt securities,
 
 
 
Response to FASB’s proposal aroused heated reactions from the banking industry.
 
"What the accounting boards are discussing now would be the biggest accounting change we've ever seen," said Donna Fisher the American Banking Association’s senior vice president of tax, accounting and financial management in a press release.  "We are deeply concerned that the shortcuts being taken will result in flawed or inconsistent rules."
 
ABA expressed concern in their statement that the standard setting process is being compromised, partly because IASB's timeline for completion may not allow U.S. companies to have a chance for appropriate due process in providing input.
 
Brian Wesbury, chief economist at First Trust Advisors LP in Wheaton, Illinois used more colorful language speaking to Bloomberg.com.
 
“Like a horror flick monster that just won’t stay dead, FASB’s accountants are proposing to expand the application of mark-to-market accounting rules across the board to include all financial assets, including regular loans,” Wesbury said.
 

You may like these other stories...

IRS audits less than 1 percent of big partnershipsAccording to an April 17 report from the Government Accountability Office (GAO), the IRS audits fewer than 1 percent of large business partnerships, Stephen Ohlemacher of the...
Is it time to consider a value added tax?Forbes contributor Joseph Thorndike wrote yesterday that he believes the tax reform proposal by House Ways and Means Committee Chairman Dave Camp (R-MI) was dead on arrival. But he...
Read more from Larry Perry here and in the Today's World of Audits archive.The planning phase of an audit engagement of an entity using US GAAP or a special purpose framework will, with minor differences, include similar...

Upcoming CPE Webinars

Apr 22
Is everyone at your organization meeting your client service expectations? Let client service expert, Kristen Rampe, CPA help you establish a reputation of top-tier service in every facet of your firm during this one hour webinar.
Apr 24
In this session Excel expert David Ringstrom, CPA introduces you to a powerful but underutilized macro feature in Excel.
Apr 25
This material focuses on the principles of accounting for non-profit organizations' revenues. It will include discussions of revenue recognition for cash and non-cash contributions as well as other revenues commonly received by non-profit organizations.
Apr 30
During the second session of a four-part series on Individual Leadership, the focus will be on time management- a critical success factor for effective leadership. Each person has 24 hours of time to spend each day; the key is making wise investments and knowing what investments yield the greatest return.