Wall Street Firms Take Issue with FASB's Fair-Market Standard
Several financial-services firms-including Citigroup and JP Morgan Chase & Co.-are asking the Financial Accounting Standards Board (FASB) to take another look at a requirement that would change the way companies calculate the fair-market value of assets and liabilities, Dow Jones Newswires reported.
Currently, derivatives and trading securities are the types of debt that would be covered by the rule. This is the type of debt that banks and brokerage firms already are marking to market regularly, with gains or losses running through earnings, Dow Jones reported.
The Wall Street firms, in comment letters to the accounting rule-making body, generally agreed with the FASB on the concept of marking those liabilities for a firm's own credit quality, Dow Jones reported.
They took issue with the fact that the concept doesn't apply across the board and it could cause accounting gains that are never realized. Under the proposed requirement, the firm would be booking gains from its debt as its credit quality deteriorated, Dow Jones reported.
However, in a comment letter, Lehman Brothers contended that such gains wouldn't likely be "economically realized" as the firm might have to retire its old debt with new debt at higher interest rates. "Therefore, we strongly believe liabilities should not be recognized at fair value - inclusive of changes in an issuer's credit spread - unless the effects of such changes are realizable," the New York firm wrote and Dow Jones reported.
The board plans to address this issue and others as it works on a final draft of the fair-value standard in the next few weeks with an aim toward the standard becoming effective after June 15, 2005, Dow Jones reported.