RCM Editorial: FASB Update

Financial Accounting Standards Board (FASB) Update:

Earlier in the year the Financial Accounting Standards Board (FASB) passed a ruling that beginning this fall all companies were required to adopt FAS 157 which would make it harder for companies to avoid putting market prices on securities known as Level 3 assets. FAS 157 defined fair value, established a framework for measuring fair value in generally accepted accounting principles, and expanded disclosures about fair-value measurements. In developing FAS 157, FASB said it considered the need for increased consistency and comparability in fair-value measurements and for expanded disclosures about such measurements. In effect FAS 157 was intended to prevent companies from hiding balance sheet losses and inflating earnings.

However, this summer the FASB yielded to government pressure and postponed the adoption of FAS 157. A revised version of FAS 157 has now been released. The revised FAS 157 gives much greater latitude to corporations to misprice hard to price assets and inflate earnings. In our opinion this is yet another attempt at government manipulation of the market that is likely to fail. In order to succeed it assumes that market participants will continue to place primary importance on quarterly earnings reports. However, it is very difficult to fool all of the people all of the time. Therefore we would not be surprised to see the market move away from spurious earnings reports and adopt the 1950's attitude that dividends and yield are the primary determinants of a stock's value.

For more information you can visit this site: http://www.financialweek.com/apps/pbcs.dll/article?AID=/20081010/REG/810109977/1036