So does anyone have an opinion? Is there any danger (or possible "unintended consequences") from suspending Statement Number 157 of the Financial Accounting Standards Board? Here is some background: http://en.wikipedia.org/wiki/Mark_to_market
Could There Be Unintended Consequences to Suspending Statement Number 157 ("Market to Market") of the Financial Accounting Standards Board
updated by oldsendbrdy on Sep 30, 2008 at 11:36:10 am Comments: 10
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Lenders need a true picture of a company's asset worth in order to make sound lending decisions. Investors (shareholders) need a true picture of the compnay's balance sheet (where assets are accounted for) to make a stock purchase decision. Over valuation of assets distorts the true value of the company on the balance sheet. And as Enron did, the net gain or loss realized in mark to market can be used to post profits that aren't really there. This distorts the income statement. I'm against suspension of the mark to market rule. It removes speculation and subjectivity from what as asset's real value is.
Well, take the case if mark to market is suspended. What help would that really do for the financial behemoths? An increased valuation of the assets, yes. Any increased liquidity (liquidity is the ability to convert an asset into cash, btw), no because no one is willing to buy these assets at even the mark-to-market rate right now. So, changing mark-to-market really does nothing except make the financial statements look much nicer to the average investor, but there is no increase in real capital. Mark to market is the same as FMV (fair market value) and is a correct valuation of the assets these institutions are holding.
Could you go to the bank and ask for a loan by stating your home is worth $500,000, even though any rational person would only give you $100,000 for it? Sure, one day when the realty market returns then your house may be worth $500,000, but no one should value an item at its expected future FMV. If mark to market is suspended, then these institutions could say that their investments are worth what they initially paid for them. They're not.
Suspension of mark-to-market does not protect the investor, and the investor is the person that every CPA is responsible to.
So why does Newt Gingrich want the SEC to suspend "mark to market"? http://www.forbes.com/home/2008/09/29/mark-to-market-oped-cx_ng_0929gingrich.html
Is he aware of something that you guys aren't or is he just not competent to propound on this subject?posted by oldsendbrdy on Sep 30, 2008 at 05:46:26 pm #
This linkhttp://online.wsj.com/article/SB122280147924091325.html?mod=googlenews_wsj, presents some of what you two above have said. It seems as though conservatives(?) are always on the side of the business owners rather than the investors.
posted by oldsendbrdy on Sep 30, 2008 at 05:59:07 pm #
posted by oldsendbrdy on Sep 30, 2008 at 06:02:42 pm #
Newt Gingrich's sudden re-intrusion into the Government's handling of the Nation's capital markets is a signal to big business that when he runs for President in 2012 they can give big money to his campaign, knowing that he will deliver business friendly legislation.
Except Gingrich is unelectable. While he was garnering a 28% approval rating in congress and ragging on Clinton for having an affair in the 90s, he was having an affair, lied to congress, was sanctioned, and fined.
-----I think the resistance is just a token gesture, to make it look more palatable and have the sense that someone was fighting for Joe 6pack....
oldsendbrdy --
Newt is speaking from the perspective of a businessperson. The AICPA (American Institute of Certified Public Accountants)and PCAOB (Public Company Accounting Oversight Board) establish the code of conduct for CPA's and the auditing standards, respectively. CPA's are obligated to work in the best interest of the investors, creditors, and other users of the financial data when assessing which Generally Accepted Accounting Principles (GAAP) to apply to accounting transactions. Mark-to-market would be great for businesses, but CPA's have no obligation to the business. Mark-to-market is the closest approximation to the true value of the asset, thus it is the most appropriate accounting method to use. Also remember that accountants and CPA's have an obligation to be conservative in estimates/valuations.So, when reading commentary on mark-to-market, always remember which side the person is speaking from; business or accountant? Do we want financial statements that are conservative in estimates or financial statements that serve to make the business look appealing? One protects the public while the other reinstates the Enron era.
Apparently, Enron found some value in "mark to marketing" accounting practices. http://en.wikipedia.org/wiki/Enron_scandal
posted by oldsendbrdy on Sep 30, 2008 at 11:48:41 am #