Opponents of mark-to-market accounting complain that some companies are making silk purses out of sows’ ears.
Panelists of a Securities and Exchange Commission roundtable on fair-value financial reporting on Wednesday clashed over an accounting provision under which a company can boost its reported earnings by becoming less creditworthy.
In the provision, paragraph 15 of standard number 157, the Financial Accounting Standards Board’s controversial new stricture on fair-value accounting, FASB states that the fair value of a company’s liability must reflect the risk that the company won’t pay it back. Thus, as the risk that companies won’t pay back their debts rises, their reported liabilities actually decrease--and may even provide an earnings boost.
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