FASB chairman's views–lessons learned from the credit crisis
19 Sep 2008
In a speech to a broad group of financial executives at a forum on structured finance in New York, US Financial Accounting Standards Board Chairman Robert H Herz spoke about Lessons Learned, Relearned, and Relearned Again from the Credit Crisis – Accounting and Beyond.
So, here's my list of some of the key lessons to be learned and, in some cases relearned, as well as some important questions that I feel need to be asked:
Regarding the use of fair value measurements for financial instruments, Mr Herz said: To be sure, there is no question that implementing fair value in illiquid markets can be challenging and difficult and there are important questions to be asked. Does it lead, reflect, or lag reality? Are there genuine concerns over procyclicality ? These are important questions and issues; but I would ask, what is the alternative? Not to try to be truthful about the current value of your assets, to use original cost or some other smoothed value that ignores current market conditions? Yet, in some cases, that is what some people have asked us to do – suspend the bad news for a while, until things get better. That is what Japan tried to do rather unsuccessfully for over a decade. Investors have been clear: they want to see the current fair values of a company's financial assets. They believe it is the appropriate method of accounting for such items, and they generally applaud the added transparency provided by the new disclosures under FAS 157 (and indeed would like some additional disclosures like ranges and sensitivities). |