An article today titled ‘Criticism of U.S. accounting changes mounts, and IASB said the rationale for watering down fair value is “crazy”’, reports that Tom Jones, vice-chair of the International Accounting Standards Board, has said Wall Street lobbyists and U.S. politicians are damaging the credibility of corporate reporting and hurting the interests of investors around the world by pulling-back on fair value accounting. In an interview with the Financial Post, Jones warned of “a loss of credibility” and said the rationale for watering down fair value is “crazy.” He also cited concerns about political interference that could undermine the independence of accounting rule setters, a fear that was echoed Monday by other senior accountants. Criticism of those seeking to do away with fair value accounting was echoed by Nouriel Roubini, the widely reported New York University economist and founder of the RGE Monitor website. On Monday Mr. Roubini called the U.S. rule changes “a big mistake” that have allowed Wall Street banks to “fudge” their latest set of quarterly accounts. The article also reports that at a London meeting of the Financial Crisis Advisory Group, senior industry experts expressed concern about the politicization of the process of revising accounting standards. Harvey Goldschmid, the group’s joint chair who is a former commissioner of the Securities and Exchange Commission, and IASB chair Sir David Tweedie, were among those who warned of the dangers of political pressure that could weaken the independence of accounting standard setters.

This is precisely what I have said in different ways in several posts on this blog dating back to September, when the SEC first became involved in the mark-to-market debate. Importantly in my view, the recent rise in the U.S. stock market indices frequently has been attributed at least in part to Q1 positive earnings reports from some of the large U.S. banks. The open question is: Would they have been profitable under the old mark-to-market rules. The sad truth is that no one likely will ever know, or if they would not have been will only know ‘too late’. Ultimately; however, Mr. Market will price stocks based on free cash flow and solid ‘properly valued asset’ balance sheets, not based on highly subjective decisions made within the accounting reporting rules of the time.

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