The gap between GAAP and IFRS

No c®oo©k is cooking the same dish in the same way. So if we talk about European and US banks in cooking up their books we have to realize that IFRS and GAAP are not producing the same figures. We have to adjust before we can compare.
As an example we take from a report from Deutsche Bank a very good picture concerning the ‘difference’ of the value of total assets under IFRS (gross exposures) and GAAP (derivatives are represented at their net values).
We observe that IFRS is overstating the leverage compared to GAAP accounting.

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A change of rules for Europe?

He’s back, my favorite accountant of Dublin. Good ol’ Charlie McGreevy, the Internal Market Commissioner of the EU calls upon the International Accounting Standards Board to consider a change of one of its rules to align with the reform of its US equivalent allowing European banks to have more flexibility in valuing toxic assets.
As said before: even this will boost bank earnings and improve the capital levels, it doesn’t take away the roots of the problem: funding this stuff and the liquidity of these markets.
As we stumble deeper and deeper in the economic abyss, banks want to get rid of this toxic waste because repayment at maturity becomes more and more a problem. But they can’t, coz’ there is no market left.
Now, abolishing M2M makes sense if you have a central bank doped with quantitative easing. Not the ECB…
Hey Charlie, dear, what about IAS 39 you once favored, where fair value was the sacred cow?

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Crooks

From the New Yotk Times:

Standard & Poor’s and Moody’s are worthless and should be ignored, argue Jerome S. Fons, former managing director at Moody’s, and Frank Partnoy, a law professor at the University of San Diego.
Investors and regulators should drop rating-related language from contracts. Instead, they should return to good old-fashioned judgment.
Credit ratings can mean the difference between life and death for a company, but the agencies should get F’s for failure, Fons and Partnoy assert in an editorial in The New York Times.
“No one has been more wrong than Moody’s and S&P,” they write.
They gave stellar marks to large but troubled companies such as AIG and Lehman Brothers. Mortgage-backed assets now called toxic got AAA ratings until recently.
Yet many investors opt to buy or sell — are even required to buy or sell — based on rating. Downgrades can trigger sell-offs and panics.
“This has left us in a ratings trap,” the pair write. “As more regulators and institutions rely on ratings, the agencies have become increasingly reluctant to downgrade.”

It's a little late now to close the doors of the barn now the horses have fled

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There it is... the FASB has spoken

Another thing passes our desk.
The FASB has finally spoken.
This one is from John Carney

A myth. Which sounds like a fitting description of what the Financial Accounting Standards Board is proposing to introduce onto the books of companies holding "distressed" assets. Today the FASB, which sets U.S. accounting rules, proposed allowing companies to exercise more judgment in determining if a market for an asset is active and if a transaction is "distressed."
At its heart, it's not a crazy idea. If an asset can be fairly expected to spin off more cash than current market values imply, it makes sense to allow for accounting adjustments. It is possible that a bundle of mortgage backed securities, for instance, could suffer from an irrationally low price if a temporarily market dislocation was caused by a liquidity squeeze. Marking these to market could create a false impression of their underlying value.

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