CLIENT SERVICE OPPORTUNITIES

Will the Credit Crisis Sink Fair-Value?

And how much could it hurt the IASB?

Rob Lewis (pictured) at FinanceWeek.co.uk makes five great points:

  1. The IASB entered 2008 £3.5 million short of its annual budget… Securing the remaining funding could prove difficult if cash-strapped financial institutions no longer see anything to gain from fair value now that the downturn has kicked in. Or, indeed, from advancing a system of standards that some see as partly responsible for the market’s instability in the first place.
  2. Last week, AIG’s chief executive, Martin Sullivan, complained that the group had no intention of selling its assets at the current prices. He argued that the current rules created a vicious circle in which companies incurred paper losses, lost the confidence of investors, and then had to raise funds in unfavorable market. Lehman Brothers and Goldman Sachs also wrote-down of $1.8 and $2 billion respectively.
  3. Barney Frank, chairman of the Financial Services Committee in the House of Representatives, has also asked for the fair value rules to be reconsidered.
  4. Now that national economies may be at stake, reforming fair value has ascended the agenda.
  5. To what extent it will survive in its original incarnation remains to be seen.

Full article, here.