WASHINGTON-Lawmakers introduced a bill to create a new body that would have the final say on accounting standards, including requests to suspend controversial rules on fair value accounting, known as mark-to-market.
The proposal comes as a key House subcommittee was holding hearings last week on the impact of the controversial accounting rules on the current financial woes at banks, credit unions and other financial entities.
The bill would create a Federal Accounting Oversight Board that would consist of the Treasury secretary, and the chairmen of the Federal Reserve Board, the Securities and Exchange Commission, the FDIC and the Public Company Accounting Oversight Board. It would approve the generally accepted accounting standards set by the Financial Accounting Standards Board, better known as FASB, which currently writes the rules for GAAP.
Congress has been rebuffed before in efforts to seize power over the setting of accounting rules, most recently when corporations urged lawmakers to interfere in FASB's efforts for a full accounting of employee stock options.
Fair value accounting rules, which were enacted 18 years ago by FASB, have come under attack as exacerbating the current financial crisis by requiring entities to report the value of their holdings as the current fair market value, which has been deteriorating for the past year. In some cases, such as in the trading for so-called private-label mortgage backed securities, there is no market, thereby pushing the fair values of those instruments down even further.
The situation is particularly acute among corporate credit unions that hold billions of dollars of private-label MBSs that, in turn, have accumulated billions of dollars of unrealized (market) losses, rendering several of the corporates insolvent.
The corporates have been lobbying FASB, the SEC and NCUA to ease fair market accounting rules to help alleviate their troubles, but have so far received no help. Last month, CUNA called on President Obama to create a presidential task force to review and possible amend the rules for fair value accounting.
