FASB Gives Banks Ticket to Doctor Their Books (Pt .1)

Long-term fix or short-term trickery?

Banks saddled with toxic assets have cried to the government for relief. They’ve received a cash advance of taxpayer money, and now they’ve been given yet another gift.

Ronald Orol reports for MarketWatch that the Financial Accounting Standards Board (FASB) voted unanimously to “give auditors more flexibility in valuing toxic mortgage assets that may have long-term value.” This is expected to boost bank operating profits for Q1 2009. It also alters mark-to-market rules, where banks and corporations assign a value to assets like mortgages, securities, credit-card debt and student-loan investments. The value s assigned are based on the current market price for that asset.

Banks are chomping at the bit for this

The FASB’s decision comes none too soon in the mind of bankers, who have complained that they have assets that can’t be sold because there is no active market for them. Banks and their auditors will now be allowed to use “significant judgment” when valuing toxic asset. What does this mean? If companies have assets with strong cash flows that can be estimated, then those cash flows would be the basis for estimating appropriate value in the corresponding toxic (illiquid) market. ... click here to read the rest of the article titled "FASB Gives Banks Ticket to Doctor Their Books (Pt .1)"