topleft
topright

Login or Register


Featured Blogger

How cost cutters can wield a more effective axe
annearf

Red-Hot Thread

"The corporate brand is not only used to improve competitive positioning and express company aspirations, it can also be a powerful tool to motivate employees."

Latest Forum Posts

Expense Management -The Other White Meat
in CFO Conversations by tomqueeney, 27-05-10 20:58
in Your Career by SherylNash01, 27-05-10 16:25
in Your Career by SherylNash01, 27-05-10 16:12

CFOZone Experts

Opinions and views from expert CFOZone members.


May 28
2010

More ado about fair value

Posted by Ron F in Untagged 

Ron F

The accounting change for reporting the value of banks' loans, which got the New York Times all hot and bothered yesterday morning, really amounts to a hill of beans, once you take a closer look at it.

In fact, the description in the article left me scratching my head on a couple of counts. How, for example, do banks write down the value of non-performing loans, as accounting rules require them to do, if they don't mark them to market?

And what's up with the tortuous explanation of how the Financial Accounting Standards Board decided to have banks mark to market the loans for purposes of the balance sheet but not for earnings? While I'm as big a fan as anyone of Jack T. Ciesielski, the accounting expert who publishes the investment newsletter, the Analyst's Accounting Observer, his quote calling the decision a "smorgasboard" doesn't really mean anything without some sort of context.

That context is pretty easy to provide, at least in the eyes of Charles Mulford, a Georgia Tech accounting professor and advisor to CFOZone.

As Mulford sees it, FASB simply is bringing information that's already contained in the footnotes onto the balance sheet, specifically into the line item on that statement known as "other comprehensive income." And this quite naturally has no impact on the earnings bank report on their income statements.

Currently, banks' balance sheets carry loans at historical cost, less an estimate of the portion that is uncollectible, with fair value information in the notes, the accounting professor explains. The proposal would move the fair value information to the balance sheet by reconciling the cost of the loan with its fair value, he continues. But Mulford adds that there would be no change in the income statement, since that already includes any loan impairments. Instead, adjustments to fair value would be accounted for as a component of other comprehensive income, which is reported on the balance sheet.

"I view it more of a change in presentation than a change in accounting," says Mulford.

In other words, investors who pay attention already understand this, so any complaints on the parts of banks should be seen as just an attempt to continue to fool those that don't.

Another day, another CFOZone accounting intervention. 

 

Trackback(0)
Comments (0)Add Comment

Write comment
smaller | bigger

security code
Write the displayed characters


busy




Market Data

Featured Video


What does a Chief Sustainability Officer do?

It's a job title that hardly existed three years ago. But now companies ranging from CA to Dupont employ one. CA's CSO Stephen Boston explains why.


Copyright © 2010 CFOZone. All rights reserved.