With a hat tip to HW reader Owen, CFO.com covers the Financial Accounting Standards Board’s decision not to delay implementation of FAS 157 — the headline is “Ready or Not, Here Comes Fair Value.” Accounting regulations are usually snoozers in terms of business value, but this one has huge import for the mortgage industry and particularly in the secondary markets — because it will ostensibly force mark-to-market activity by investors. The whole thing actually has me channeling Dirty Harry: Think you’ve seen enough write-downs, punk? Well, do ya? From the story:
On Wednesday, most board members seemed to feel that a “wholesale” deferral of FAS 157 — which provides a framework for marking value estimates to market rather than historical cost — would overly delay gratification for financial statement users. Investors, after all, largely favor the expanded use of the fair-value method of accounting. A one-year delay wouldn’t necessarily make corporate executives struggling with the standard feel more ready to comply, the board members concluded. In fact, the board questioned whether companies lack the resources to comply in a timely way, as the preparers of financial statements have claimed. They wondered if instead, managers are simply engaged in a delaying tactic. “I think the goal here is to change the document rather than support it,” said board member G. Michael Crooch of the intent of the comment letters FASB has recently received asking for a delay.
While there may certainly be valid reasons to delay here, I have to think that part of the motivation is the result of current market conditions — market participants are really hoping the structured securities markets surrounding mortgage-backed bonds and relative derivatives will have time to rebound before everyone has to start interpreting and implementing FAS 157. (Talk about a horrible time to have to mark-to-market.) FAS 157 is scheduled to go into effect November 15, along with its sister proposal, FAS 159, The Fair Value Option for Financial Assets and Liabilities.
