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Thursday, November 15, 2007

FASB Rule 157 still has teeth

In a recent post I wrote how Goldman Sachs and others could be facing deeper write-downs as the result of FASB Rule 157.

There has been news that the rule has been deferred for one year. In actuality, the FASB has only chosen a partial deferral. The rule takes effect today as scheduled for financial assets and liabilities of financial institutions. Accounting in compliance with the rule will be deferred for one year for non-financial assets and liabilities.

The FASB statement is brief and the full text of the announcement is below:

"NEWS RELEASE 11/14/07
FASB Rejects Deferral of Statement 157 for Financial Assets and Liabilities

Partial Deferral Granted for Nonfinancial Assets and Nonfinancial Liabilities

Norwalk, CT, November 14, 2007-At its Board meeting today, the Financial Accounting Standards Board (FASB) reaffirmed its vote against a blanket deferral of Statement 157, Fair Value Measurements. For fiscal years beginning after November 15, 2007, companies will be required to implement the standard for financial assets and liabilities, as well as for any other assets and liabilities that are carried at fair value on a recurring basis in financial statements. As a result, Statement 157
becomes effective as originally scheduled in accounting for the financial assets and liabilities of financial institutions.

The Board did, however, provide a one year deferral for the implementation of Statement 157 for other nonfinancial assets and liabilities. An exposure draft will be issued for comment in the near future on this partial deferral. The audiocast of the November 14th meeting is currently available at www.fasb.org. More information about topics discussed and decisions reached at the meeting will also be posted on the FASB website in the coming days."

Unless SIVs, CDOs and MBSs are somehow considered "non-financial" it still looks like many financial stocks will get hit with the full force of reality in pricing their illiquid Level 3 assets. This could get very ugly.

Barry Ritholz has written a good post on this subject. You can read it here.

Disclosure: author owns no stocks mentioned on this article

1 comment:

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