Obama urged to suspend fair value

A former chairman of America’s federal Deposit Insurance Corporation has
called on the incoming Obama administration in the USA to start working on
accounting reforms as soon as the new president takes office on 20 January.

Speaking to Accountancy Age a day after the decisive election of
Barack Obama as the 44th president of the United States, William M Isaac said:
‘I think generally that our accounting rules, as well as the way in which we set
them, ought to be a very high priority for the Obama administration.’ Isaac has
been an outspoken critic of mark-to-market accounting rules and has participated
in the ongoing review of the practice by the Securities and Exchange Commission
(SEC).

Qualms over the state of the economy have thrust US accountancy rules into
the limelight. Despite the fact that he did not address the issue publicly in
his campaign Isaac said Obama should act immediately to suspend mark-to-market
accounting rules and get the economy moving again.

‘If I were president-elect Obama, I would make that my first order of
business – even before I took office,’ he said. ‘Then we could look at other
issues.’ The SEC’s mark-to-market review is scheduled to be completed by January
2.

Isaac is one of many senior accountancy players in the USA waiting for
signals from the new head of state about how he will address American accounting
rules.

Neal E McGarity, a spokesman for the Financial Accounting Standards Board,
said the FASB was prepared to wait to see how the new administration will
address accountancy issues, given his immediate challenges of assembling a
Cabinet and preparing to deal with two wars and a global financial crisis. ‘It’s
got to be very low on his list of priorities at the moment,’ McGarity said.
‘That’s many weeks down the road.’

In the meantime, the FASB said it would stick to supporting the September
memorandum of understanding it framed with the International Accounting
Standards Board (IASB), which – stressed McGarity ‘reaffirms our commitment’ to
develop and maintain compatible reporting standards, maybe adopting
International Financial Reporting Standards (IFRS) by 2014.

Barry C Melancon, president and CEO of the American Institute for Certified
Public Accountants, said he hopes the Obama administration will move the USA
toward adoption of IFRS. ‘We hope that that gets done…we support a single set of
high standards.’

According to Isaac, the current financial situation is made worse by laws
that hold accountants liable for outrageous sums in litigation. He said the
Obama should make changes to laws that force accountants to ‘cough up hundreds
of billions of dollars.’ He said changes to liability laws should be a high
priority, just after revisiting fair value accounting rules.

‘Part of the problem we have with the accounting rules is the accountants
have been sued for billions of dollars – that they’re so risk averse’ that they
do not want any rules that call for judgment because they are afraid of
litigation. He said Obama should ‘review liability and whether they ought to be
held to such high standards in litigation.’

Melancon said the first priority of the Obama administration should clearly
be a comprehensive effort to stabilize the economy, the ‘most pressing’ issue at
stake. He said Obama ‘understands that that’s critical and seems poised to
identify the people to deal with that.’

Further Reading:

Asset
or Liability: What Barack Obama means for you