We read with interest Andrew Osterland's recent article on fair-value accounting (A Loophole That's Lost Its Luster, FW, Feb. 4), but he missed the mark in a few areas.
Mr. Osterland suggests that the Financial Accounting Standards Board and the Securities and Exchange Commission were unaware that some companies might use SFAS 159 to restructure their portfolios.
However, restructuring was contemplated by FASB prior to issuing SFAS 159, and the requirement to exclude the impact on income remained in the rule as a carrot to expand banks' use of fair value. While the fair-value option is elective, its rules are not.
Our discussions with FASB prior to adoption by banks confirmed that restructuring was deliberated and FASB decided to address it through disclosure.
Mr. Osterland's article further suggests that auditors were the first to raise concerns about appropriate use of SFAS 159, yet it was the banks that first brought the issue to the attention of their auditors.
The SEC's official interpretation of the standard was not publicly known until after banks had asked questions of their accounting firms, their banking regulators and FASB as to the propriety of restructuring.
Bankers got the same answer with each inquiry: restructuring did not appear to be prohibited, but disclosures had to be robust.
Mr. Osterland concludes his article by making the point that requiring fair value for more financial instruments would not go over well with the business community in today's volatile market.
This misses the broader point that expanding fair value does not sit well with the business community regardless of market conditions.
Senior vice president, tax and accounting
American Bankers Association
We welcome reader comments. Send yours to [email protected] or Financial Week, 711 Third Ave., New York, N.Y. 10017-4036.