Another To Blame: IFRS

Funny that the world markets would be tanking at the same time the US market tanks.  The arrogant American in me just presumes that it is the thrust of our power internationally that we can pull others into financial chaos when we have a large (seismic) correction.  But there is another explanation.  What a surprise – the rest of the world that uses IFRS utilize fair value accounting.  And our adoption of it was to conform better to the world’s accounting standards!

When proposing the adoption of FASB 157 (providing Fair Value Accounting for financial assets and liabilities), Leslie F. Seidman, FASB member and Board collaborator on the project, said

Today’s proposal also helps achieve further convergence with the International Accounting Standards Board, which has previously adopted a fair value option for financial instruments.

Oh my.  We are emulating the international community.  In fact, we are abandoning our own accounting standards for those employed internationally.  The same international group of nations that make up (at least part) of the United Nations, a body not known for its credibility.  Now we face an economic crisis not seen since the 1930′s and we can point to movement from the GAAP to IFRS for at least exacerbating the crisis.

Some have come out for the immediate suspension of the mark-to-market, or fair value accounting, rule. I am amazed that it hasn’t already been done.  In fact, it is surprising that the (unsuccessful) “bailout bill” only reiterated a power that is already in the hands of the SEC:  the power to suspend the rule.

The only reasons put forward are conspiratorial in nature so not worth discussing.   If in fact the suspension of the rule saves the taxpayers several billion dollars, it is in the best interest of our economy that it be suspended.  If it we do nothing but throw more money at the problem, it is my view that the correction will take much longer and a return to prosperity will be long delayed.

However, if we suspend the rule and our markets recover, then once again we can show the world how free markets prevail – without government intervention – and maybe help them re-think some of their accounting standards.

Keep in mind that even without our current crisis, our economy was already heading into an ugly time period where our growth was minimal and inflation was creeping up.  The prosperity we have enjoyed for many years is likely to end for at least a few years – perhaps more if government intervention doesn’t work or is employed improperly.

A great read on Fair Value Accounting, written by Robert E. Jensen, can be read by clicking here.