America’s Financial Accounting Standards Board (FASB) and its London-based counterpart, the International Accounting Standards Board (IASB), both privately-owned, self-regulatory bodies, have for decades been trusted with the task of setting the accountancy standards that represent the bedrock for truthful financial reporting worldwide.
In the light of the recent shocking revelations about Lehman Brothers and the highly dishonest auditing that precipitated the banking and financial crisis, one has to ask whether these bodies deserve their exalted status or even their legitimacy.
The latest revelations about Lehman Brothers — that it used accounting sleight-of-hand sanctioned by auditors Ernst & Young and London lawyers Linklaters to “lose” $50bn of toxic loans off its balance sheet —makes it abundantly clear something is rotten at the heart of accountancy.
Why were auditors and accountants, following the standards laid down by the IASB and FASB, able give the impression their bank clients were hugely profitable and well-capitalised in February 2008, when many of the same institutions were revealed to be bust and collapsed either into bankruptcy or state-ownership a few months later? One has to wonder what was going on (see Big 4 firms had a pivotal role in crisis — my earlier blog post on accountancy firms’ and the crisis).
Liberal Democrat treasury spokesman Lord Oakeshott has called on the UK government to commission a fundamental review of the audit profession and Michael Fallon MP, deputy chairman of the Treasury Select Committee, has said: “Too much is being concealed. We need a fresh approach that gives a more realistic picture of bank finances and not one that disguises risky practices.”
For a more detailed analysis of why the time has come for the FASB to be disbanded, here’s an excellent blog post by venture capitalist Roger Ehrenberg (a former senior executive at Deutsche Bank and Citigroup). To read “It’s Time To End FASB (And Shake Up The SEC)” on Roger’s own website, click here
This blog post was published on 15 March 2010
When the (real) history of the (next) crisis is written, the most heinous crime will come to be recognised as that commited by Barney Frank’s ‘wet-ops’ appointee Paul Kanjorski.
Almost exactly a year ago, Congressman Paul Kanjorski, Chairman of the House Financial Services Subcommittee (presumably under intense pressure from his banking lobby paymasters) blackmailled, cajoled, and threatened FASB into making balance sheet fraud legal by lifting mark to market on their most ‘inconvenient’ assets.
The sad irony is that only now is it starting to dawn on them that this has completely choked Obama’s masterplan for loan mods.
Expect a history rewrite from Grima Gibbs any day now.
The whole system and its procedures are corrupt. We all know it. So why won’t Gordon and Co do something about it? Because it suits them not to! You do the maths…