The SEC allowed US banks to leave GAAP accounting principles for an International Accounting Principles that place the protections on shareholder wealth and not the public. As you see below, so many accounting frauds are happening now. Accounting is a dry subject but it is behind all of the loss of control in fraud and corruption. Please take time to glance through these postings, especially the last one!
DO YOU HEAR YOUR POL SHOUTING THAT OBAMA AND NEO-LIBERALS ARE DISMANTLING ACCOUNTING REGULATIONS JUST AS CLINTON DEMANTLED BANK REGULATIONS MAKING IT HARDER FOR THE PUBLIC TO CONVICT IN ACCOUNTING FRAUD?
I want to take a few days to look at the state of US banks several years after the massive frauds were discovered and brought down the US economy. Bank of America and Citibank were to too largest pushers and processors of subprime mortgage loans and Citibank's CEO Robert Rubin was of course Bill Clinton's finance chief when all of the bank deregulation and breaking of Glass Steagall occurred. It is reasonable to assume the overall plan to blow up the US real estate market was in full swing as Clinton was creating the structures for what is now global Wall Street. The reason Citi and BOA are of importance is that they are the ZOMBIE banks....the ones that Rule of Law would have required be nationalized and taken into bankruptcy so that all assets could be sent back to creditors and victims of mortgage fraud.
THIS IS WHAT RULE OF LAW REQUIRED BECAUSE OF THE UNQUESTIONABLE PROOF OF MASSIVE AND SYSTEMIC FRAUD.
That of course did not happen and we have yet to get justice with these two banks. Mind you, Wells Fargo and the other big banks are equally guilty but CITI and BOA need to go. Most economists agree that nationalizing these banks to recover fraud would not have had much more of an effect on the economy than the current stagnant and crippled economy we have today. The second piece to this of which I've spoken earlier is that the movement of US private and public pensions from the then safety of the bond market to the stock market in 2007-2008 was done to buoy these collapsing banks. Many of US pension money is still attached to the worst of criminal banks. Rather than bring these banks into bankruptcy and transfer lost pension wealth to worker's, the pensioners are being told the gains of the BULL market these few years has made up the losses----only, it hasn't.
Below you see that yet another illegal game was played at the time of the crash simply to make these banks appear viable. The idea was pretend they are OK and they can go overseas to amass new profits. The idea was to allow the FED policy of QE take trillions of dollars of those bad loans off bank accounts to make them look healthier----the FED with $4 trillion in debt has been heard to say they will pass all that debt from fraudulent loans over to the US Treasury-----AKA, THE TAXPAYER. The FED has reached its limit of debt that can be sustained, the massive transfer of bundled foreclosures has mostly finished (round two of the massive subprime mortgage fraud) so talk moves to reversing the policies that allowed these banks to hide debt and look healthy.
GOODBYE PENSION GAINS FROM THE LAST SEVERAL YEARS----IT WAS ALL FRAUD AND MISREPRESENTATION YET AGAIN. JUST AS THE WALL STREET RATING AGENCIES GOT OFF SCOTT FREE FOR FRAUDULENTLY GIVING 'AAA' RATINGS TO THESE SUBPRIME LOANS---NOW BANK OF AMERICA AND CITIBANK WILL BE ALLOWED TO REVERSE THE ACCOUNTING TRICKS THAT FALSIFIED THEIR VALUE FOR YEARS AFTER THE CRASH-----ALL INVOLVING FRAUD AND CORRUPTION.
'And how did it err? It says that it properly raised its reported capital levels to offset the reported loss caused by unrealized changes in the valuation of the securities it had issued. But it also raised the capital levels to offset losses that had been realized, something it should not have done. The realized changes came when securities issued by the bank were paid at maturity or repurchased at an earlier date.
That mistake improperly increased its reported capital.
Bank of America did not explain how that the error came to happen or how it was repeated year after year. Nor did it explain why the error was discovered when the first-quarter financial statements for this year were being prepared'.
What all the US big banks did-----BOA and CITI especially ----was to leave the GAAP accounting principles method of recording debt and used an accounting model that allowed it to hide all the subprime mortgage loan and other debt making it look healthier than it was. You then watch TV commercies toting BOA and CITI as strong and profitable banks as they expanded overseas when in fact they had enormous debt. Again, these banks were allowed to provide false information to investors to attain business just as happened with the subprime loans.
ALL OF THIS IS FRAUD AND ALL OF THIS PLACES THE PEOPLE'S WEALTH AND INVESTMENTS IN CONSTANT RISK.
Generally Accepted Accounting Principles (United States)
From Wikipedia
Accounting standards have historically been set by the American Institute of Certified Public Accountants (AICPA) subject to Securities and Exchange Commission regulations.[4] The AICPA first created the Committee on Accounting Procedure in 1939, and replaced that with the Accounting Principles Board in 1959. In 1973, the Accounting Principles Board was replaced by the Financial Accounting Standards Board (FASB) under the supervision of the Financial Accounting Foundation with the Financial Accounting Standards Advisory Council serving to advise and provide input on the accounting standards.[5] Other organizations involved in determining United States accounting standards include the Governmental Accounting Standards Board (GASB), formed in 1984, and the Public Company Accounting Oversight Board (PCAOB).
Circa 2008, the FASB issued the FASB Accounting Standards Codification, which reorganized the thousands of US GAAP pronouncements into roughly 90 accounting topics[6]
In 2008, the Securities and Exchange Commission issued a preliminary "roadmap" that may lead the United States to abandon Generally Accepted Accounting Principles in the future (to be determined in 2011), and to join more than 100 countries around the world instead in using the London-based International Financial Reporting Standards.[7] As of 2010, the convergence project was underway with the FASB meeting routinely with the IASB.[8] The SEC expressed their aim to fully adopt International Financial Reporting Standards in the U.S. by 2014.[9] With the convergence of the U.S. GAAP and the international IFRS accounting systems, as the highest authority over International Financial Reporting Standards, the International Accounting Standards Board is becoming more important in the United States.
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Just to show how widespread these accounting frauds were----look below at the systemic nature of these frauds. Remember, Enron and its collapse resulted by massive frauds by its accounting firm and back then----Rule of Law held Enron and the accounting firm accountable. That hasn't happened since.
DEREGULATION HAS MADE A WILD WEST OF ALL CORPORATE BEHAVIOR AND THIS HAS OUR ECONOMY AT THIRD WORLD LEVELS OF CORRUPTION.
So, Wall Street banks were allowed to hide massive amounts of debt with accounting tricks and when the FED did the 'STRESS TESTS' that famously allowed banks to exit government control due to BAILOUT in 2009-2010....it was all a lie.
16 Financial Shenanigans That Got Companies Into Tons Of Trouble
Eric Platt and Lucas Kawa Nov. 20, 2012,
Accounting improprieties, disclosure failures, and outright misrepresentations have gotten companies into trouble since the beginning of business. These are the accusations that Hewlett-Packard has made against software company Autonomy.
As the HP story continues to unfold, we are reminded of some past instances when confusing financial and accounting principles got some big companies on the front page for all of the wrong reasons.
In the recent past, companies have been busted for employing questionable accounting tricks, financial engineering, complicated risk metrics, and outright fraud in an effort to hide losses are inflate profits.
Special Purpose Vehicle (SPV) Definition: An SPV is a legal entity typically used to serve as a counterparty with the main corporation. In finance it often used for securitization, but it has also been used to hide risky corporate behavior/transactions and conceal corporate relationships.
Case: The most notorious case of special purpose entities being used to distort a company's obligations is Enron, which filed for bankruptcy in 2001. Enron used SPVs to lower the appearance of its debt load and overstate earnings and equity.
Mark to Market (MTM) AP
Definition: MTM is an accounting measure that values accounts to the current environment. Firms use mark-to-market accounting when the value of an asset or liability moves over time.
Case: Bear Stearns, the now defunct investment bank purchased by JP Morgan, reported in June and July of 2007 that its two main hedge funds (the Bear Stearns High-Grade Structured Credit Fund and High-Grade Structured Credit Enhanced Leveraged Fund) had to mark down nearly all their value, sparking concerns of contagion in the financial crisis. Banks across Wall Street suffered huge paper losses thanks to MTM.
Repo 105 AP Images/ Kristy Wigglesworth
Definition: Repo 105 is an accounting trick that defines a short-term loan as a sale. A company can then use that cash to lower liabilities before paying back the loan with interest. Generally in the repo market, companies will not exchange collateral because the time period is very short.
Case: Lehman Brothers masked extensive liabilities right before quarter-end by using this Repo 105 tactic. The company ultimately filed for bankruptcy and was sold off to different institutions (with most U.S. operations going to Barclays).
Expense Recognition ABetterBagofGroceries.com
Definition: Under generally accepted accounting principals, expenses should be recognized when incurred — not necessarily when the payment is made. This is known as the expense recognition principle.
Case: Diamond Foods allegedly shifted payments to walnut growers to later periods to offset costs during its fiscal 2011 year, inflating earnings as it entered negotiations with Proctor & Gamble. The stock transaction depended heavily on Diamond's share price.
Revenue Recognition haccamopooly/flickr
Definition: Under generally accepted accounting principals, revenue should be recognized when the company delivers or performs the task it will be paid for — not necessarily when the payment is received. This is known as the revenue recognition principle. However, exceptions do apply.
Case: Xerox settled with the SEC in 2002 for accelerating revenue recognition of equipment sales by more than $3 billion, which increased pre-tax earnings by $1.5 billion. The company, which was supposed to record revenues both upfront and over a period of time (for servicing equipment over its usable life), moved those service revenues to the time of purchase.
Misrepresented Cash Flows Definition: The statement of cash flows is the third major financial statement, which tallies cash generated and spent by a company during a fiscal period. This portion of the financial statement of an earnings release is one of the best ways to gauge a company's solvency and actual performance.
Case: WorldCom used its cash flows statement to hide expenses by marking operating costs, which should have been booked as expenses, as capital investments. Under that plan, WorldCom inflated cash flow by $3.8 billion and posted quarters of positive performance when it really lost money.
Channel Stuffing Krispy Kreme
Definition: Channel stuffing is a practice where a distributor ships retailers excess goods that were not ordered to increase the accounts receivable portion of their balance sheet. Generally, the retailers then ship back the goods and the company must mark them as returns.
Case: Krispy Kreme allegedly sent franchises double their usual shipments at the end of financial quarters so the company could meet Wall Street forecasts. In 2005 the company said it would restate past financial statements.
Hiding Losses in Acquisitions HK-DMZ on flickr
Definition: Companies can pay high prices for financial advice during a merger, and some have used that guise as a method to cover prior losses.
Case: Japanese technology giant Olympus announced it had been hiding losses on securities investments for years by using the cover of acquisitions. When new CEO Michael Woodford called attention to strange payments made in 2008, he was subsequently fired.
Round Trip Trading alan5o5 via Flickr
Definition: This is practice where a firm trades an asset and then buys it back many times to inflate its transaction volume. However, the market-manipulation has no impact on profit (although it will bolster top line results).
Case: Dynegy was forced to pay the SEC $3 million after it was found conducting round trip trades with special purpose entities. According to the SEC, Dynegy's "overstatement of its energy-trading activity resulting from 'round-trip' or 'wash' trades — simultaneous, pre-arranged buy-sell trades of energy with the same counter-party, at the same price and volume, and over the same term, resulting in neither profit nor loss to either transacting party."
Smoothing Earnings Definition: This is a practice where a firm smooths net income by using GAAP techniques to level off fluctuations between periods.
Case: Freddie Mac understated earnings by more than $5 billion over three years to keep earnings consistent and investors happy. According to The New York Times, Freddie Mac lost $111 million during a period it announced net income of nearly $1 billion. Freddie Mac only reported half of what it reported it earned during the third quarter of the year, stating that it earned about $1 billion rather than $2 billion.
Churning Definition: A practice by brokerage houses where they excessively trade securities to generate commission — even when the trades do not benefit the account holder. Similarly, the practice has been conducted by insurance companies by moving clients from one policy to another.
Case: MetLife, just one of a number of insurance companies found guilty of the practice, settled with state regulators and set aside billions for claims that it moved clients from one policy to another, to generate high premiums.
Bartering Boonsri Dickinson, Business Insider
Definition: A transaction where two companies (or people) agree to trade goods or services with each other without the use of currency.
Case: AOL was investigated by the SEC and Justice Department for inflating revenue by using barter trades for online advertising and recognizing the trade as a sale in the period leading up to the merger with Time Warner.
Tax Evasion Philly News
Definition: Pretty simple: an illegal practice where a person or company does not pay the correct tax liabilities owed to the government.
Case: Crazy Eddie, a discount electronics retailer, evaded taxes for years before going public by "skimming and under-reporting income." This was just one of the practices the company used to bolster results.
Back Dating Employee Stock Options Lara604 / Flickr
Definition: The process where a company offers options to an employee at a date before the actual date the option was made. Companies have done this so they can set better exercise prices to the employee (generally pushing the option into the money).
Case: Apple came under scrutiny for back dating options to employees and forced then-CEO Steve Jobs and other Apple executives to pay $14 million, plus attorney fees.
Goodwill Impairments Howard Lake
Definition: Although not illegal, companies have come under pressure from investors for overstating goodwill — which bolsters the balance sheet. Goodwill represents a company's intangible assets (its brand, customer relations, etc.) and often arises during a merger or acquisition.
Case: Green Mountain came under fire for its accounting of goodwill during its acquisition of Van Houtte and how its jump in assets was mainly attributable to that line item on the balance sheet.
Value at Risk (VAR) Chris McGrath/Getty Images
A sign on the outside of a Chase bank branch in New York City.
Definition: A tool used by financial institutions that estimates probable losses based on historic trends, prices and volatility. Firms generally report VAR data at quarter-end, with confidence intervals, and for periods stretching from one day to two weeks.
Case: JP Morgan is under intense scrutiny after reporting a $2 billion loss after publishing a VAR of just $76 million a quarter earlier for its entire credit portfolio. At that pace, the entire JP Morgan unit could have lost as much as $76 million in value in any given day (to a 95 percent confidence interval).
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Remember, these pensions were deliberately thrown into the stock market as it crashed just to buoy these big banks. This is fraud and public malfeasance on the part of public pensions. What will double-down on these losses if the fact that all the gains from the stock market these few years are masked by hidden debt----no real gains.
Pension fund managers were part of sending these pensions into a crashing market and as of yet very little justice has come from all these massive pension losses. Below you see movement by pension funds to recover losses but as of yet-----the same small settlements bring nearly nothing back. When Bank of America is forced to stop using the accounting methods hiding its debt-----stock values will fall once again. This article highlights the ongoing fraud as these foreclosure proceedings were handled as badly.
KEEP IN MIND THIS IS NOW HAPPENING IN THE OBAMA ADMINISTRATION AND A DEMOCRATIC MAJORITY IN THE SENATE AS ARE ALL POLITICIANS ARE SILENT. CAN YOU IMAGINE IF ALL OF CONGRESS SHOUTED LOUDLY TO GIVE CITIZENS JUSTICE ----- THAT IT WOULD HAPPEN.
This is how we know we have corporate pols running as democrats-----NEO-LIBERALS.
Biggest US Pension Funds Get Into Fraudclosure Fray, Demand Banks "Immediately Examine Foreclosure Practices"
Submitted by Tyler Durden on 01/09/2011 20:13 -0400
More bad news for the BofA/Wells syndicate. After on Friday two of the biggest mortgage lenders in the world were hit with bad news out of the Massachusetts supreme court, today it is seven of the nation's major pension funds, between them representing nearly half a trillion in capital, which are demanding that "the boards of directors of Bank of America, Citigroup, JP Morgan Chase, and Wells Fargo immediately undertake independent examinations of the banks’ mortgage and foreclosure practices." The coalition of pension funds called for the banks’ Audit Committees to launch independent examinations of their loan modification, foreclosure, and securitization policies and procedures. “This will help to prevent future compliance failures and restore the confidence of shareholders, regulators, legislators and mortgage markets participants,” the coalition advised in its letter. The coalition members’ insistence on immediate action reflects the urgency of their concerns over mishandled mortgages. But Jim Cramer on Friday said there was no urgency, and no reason to be concerned, and that this is nothing but a buying opportunity for the lemmings which jut got one step closer to the cliff.
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Let's be clear----there were trillions of dollars in subprime mortgage fraud. The number of homes in America involved was massive. The reason this fraud was allowed to continue and goes without justice is the goal of this entire scheme was to remove the American people from homeownership----
THE EQUITY WE THE PEOPLE GAINED OVER DECADES OF SAVING AND INVESTMENT.
I want people who are still losing their homes to foreclosure....and Maryland is ground zero for this.....that damages to the US economy from this massive fraud need to extend to families facing long term unemployment and are now losing their homes.
Remember, all US big banks are still responsible for massive fraud but BOA and CITIBANK were the ringleaders.
Bank of America: Too Crooked to Fail The bank has defrauded everyone from investors and insurers to homeowners and the unemployed. So why does the government keep bailing it out?
By Matt Taibbi March 14, 2012 10:55 AM ET
Rolling Stone
At least Bank of America got its name right. The ultimate Too Big to Fail bank really is America, a hypergluttonous ward of the state whose limitless fraud and criminal conspiracies we'll all be paying for until the end of time. Did you hear about the plot to rig global interest rates? The $137 million fine for bilking needy schools and cities? The ingenious plan to suck multiple fees out of the unemployment checks of jobless workers? Take your eyes off them for 10 seconds and guaranteed, they'll be into some shit again: This bank is like the world's worst-behaved teenager, taking your car and running over kittens and fire hydrants on the way to Vegas for the weekend, maxing out your credit cards in the three days you spend at your aunt's funeral. They're out of control, yet they'll never do time or go out of business, because the government remains creepily committed to their survival, like overindulgent parents who refuse to believe their 40-year-old live-at-home son could possibly be responsible for those dead hookers in the backyard.
It's been four years since the government, in the name of preventing a depression, saved this megabank from ruin by pumping $45 billion of taxpayer money into its arm. Since then, the Obama administration has looked the other way as the bank committed an astonishing variety of crimes – some elaborate and brilliant in their conception, some so crude that they'd be beneath your average street thug. Bank of America has systematically ripped off almost everyone with whom it has a significant business relationship, cheating investors, insurers, depositors, homeowners, shareholders, pensioners and taxpayers. It brought tens of thousands of Americans to foreclosure court using bogus, "robo-signed" evidence – a type of mass perjury that it helped pioneer. It hawked worthless mortgages to dozens of unions and state pension funds, draining them of hundreds of millions in value. And when it wasn't ripping off workers and pensioners, it was helping to push insurance giants like AMBAC into bankruptcy by fraudulently inducing them to spend hundreds of millions insuring those same worthless mortgages.
But despite being the very definition of an unaccountable corporate villain, Bank of America is now bigger and more dangerous than ever. It controls more than 12 percent of America's bank deposits (skirting a federal law designed to prohibit any firm from controlling more than 10 percent), as well as 17 percent of all American home mortgages. By looking the other way and rewarding the bank's bad behavior with a massive government bailout, we actually allowed a huge financial company to not just grow so big that its collapse would imperil the whole economy, but to get away with any and all crimes it might commit. Too Big to Fail is one thing; it's also far too corrupt to survive.
All the government bailouts succeeded in doing was to make the bank even more prone to catastrophic failure – and now that catastrophe might finally be at hand. Bank of America's share price has plunged into the single digits, and the bank faces battles in courtrooms all over America to avoid paying back the hundreds of billions it stole from everyone in sight. Its credit rating, already downgraded to a few rungs above junk status, could plummet with the next bad analyst report, causing a frenzied rush to the exits by creditors, investors and stockholders – an institutional run on the bank.
They're in deep trouble, but they won't die, because our current president, like the last one, apparently believes it's better to project a false image of financial soundness than to allow one of our oligarchic banks to collapse under the weight of its own corruption. Last year, the Federal Reserve allowed Bank of America to move a huge portfolio of dangerous bets into a side of the company that happens to be FDIC-insured, putting all of us on the hook for as much as $55 trillion in irresponsible gambles. Then, in February, the Justice Department's so-called foreclosure settlement, which will supposedly provide $26 billion in relief for ripped-off homeowners, actually rewarded the bank with a legal waiver that will allow it to escape untold billions in lawsuits. And this month the Fed will release the results of its annual stress test, in which the bank will once again be permitted to perpetuate its fiction of solvency by grossly overrating the mountains of toxic loans on its books. At this point, the rescue effort is so sweeping and elaborate that it goes far beyond simply gouging the tax dollars of millions of struggling families, many of whom have already been ripped off by the bank – it's making the government, and by extension all of us, full-blown accomplices to the fraud.
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Here you see while Bank of America was known to be in debt of a trillion or more in US fraud....it took its bailout money and expanded overseas where it invests in more high-risk and leverage as much as before the crash. As this article shows, the Chinese are creating the environment that will hasten a collapse in our US economy this year.
Bank of America advises China default contracts to hedge debt storm Chinese bond yields have already risen to the highest in a decade yet markets remain “complacent” about the implications Bank of America's Bin Yao says markets have underestimated the risk of a monetary squeeze
Photo: EPA By Ambrose Evans-Pritchard
2:15PM GMT 13 Dec 2013
Bank of America has advised clients to take out default insurance against Chinese debt, warning that monetary tightening by China’s central bank risks setting off a bout of serious credit stress in 2014.
Bin Yao, the bank’s credit strategist in Asia, said Chinese bond yields have already risen to the highest in a decade as the authorities seek to rein in rampant growth of the M2 money supply and excess credit, yet markets remain “complacent” about the implications.
He recommends buying credit default swaps (CDS) on five-year Chinese debt as the easiest way to “hedge the China tail risk”. These contracts spiked to 266 after the Lehman crisis and again to 206 during the ‘hard-landing scare’ of late 2011. They have since settled down to stable levels, trading this week near 66.
Bin Yao said the markets have underestimated the risk of a monetary squeeze. The central bank has already raised interest rates by three quarters of a point over the last year. Rising yields are pushing the shadow banking system closer to the brink. “We find trust loans especially troubling,” he said.
Short-term debt issuance by trust companies has jumped to $320bn from almost zero two years ago. A new study by the China Academy of Financial Research warned that the trusts face a redemption shock after promising returns of 10pc to 15pc that may be impossible to deliver.
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The American accounting system GAAP is just too burdensome with all of the defined rules that allowed accounting fraud to be easily investigated and prosecuted. That is why we need to go with this International Accounting Standard. In order to successfully break from any ability of the public to prosecute fraud as happened with Enron and Aurthur Anderson Accounting, the ability of Americans to file lawsuits for accounting irregularities must be curtailed.
So, they are doing to the accounting sector what was done with the financial deregulation by adopting this International system with much weaker and broadly defined rules.
MIND YOU----THIS IS OBAMA AND A MAJORITY CONTROLLED CONGRESS ALLOWING THIS. THE SECURITY AND EXCHANGE COMMISSION IS ACTING WITHOUT ANY THOUGHT OF PUBLIC INTEREST. THAT IS A NEO-LIBERAL FOR YOU!
DO YOU HEAR YOUR POLS SHOUTING AGAINST THIS????
The Dark Side of Global Accounting Standards
Expect loose standard-setting in the oil and gas industries and a ton of litigation if convergence hurtles down its current track, critics say.
If the Securities and Exchange Commission on Thursday votes as expected and allows non-U.S. issuers here to report their financials in line with International Financial Reporting Standards without reconciling them with Generally Accepted Accounting Principles, the United States will have crossed a point of no return in the movement toward a single set of global accounting standards, some experts feel.
But that doesn’t mean that many key players won’t cross that line without a fair amount of kicking and screaming.
Speaking at a roundtable discussion on global accounting standards at New York University’s Stern School of Business on Monday, Charles Niemeier, a member and former acting chair of the Public Company Accounting Oversight Board, said that he was “a bit troubled by the speed” of the SEC’s march toward the convergence of U.S. and international accounting standards. “If we eliminate reconciliation, what have we done? I have some fear that we’re crossing the Rubicon — that we’ve lost leverage in order to get closer [to global uniformity].”
Leverage by U.S. regulators and standard-setters to push for rigor in converged standards could be lost, as well as the clout to hold individual companies to international rules, Niemeier told CFO.com. At the roundtable, the audit firm overseer disputed a basic premise of the proponents of convergence: that if the international standards are adopted in the United States, it would produce a clearer system based on solid principles rather than rule-based minutiae. “Some say Europe is principles-based. I beg to differ. It’s younger,” he said, suggesting that much of the detail in GAAP is justified by long-standing experience. Some speakers said that IFRS lacks the detail provided under GAAP to provide adequate financial reporting in a number of specific industries in the United States, particularly oil and gas and insurance.
By contrast, critics of U.S. GAAP’s complexity, including the SEC’s own advisory committee, consider industry specific guidance to be one of the U.S. accounting system’s major flaws.
At the same time, many roundtable participants worried that the U.S. legal system — also blamed for the complexity of U.S. GAAP — might trip up global accounting standards too. Under the U.S. legal system, they said, auditors feel they must adhere closely to preset rules in order to avoid being sued. In order for IFRS to take hold in the United States, there needs to be “a change in the way we look at litigation in America, where it’s a mark of honor to sue someone,” said Stern accounting professor Seymour Jones at the roundtable.
Even a decision by the SEC to recognize the International Accounting Standards Board (which sets IFRS) as a bona fide standards setter could get tested in a U.S. court, according to Stanley Siegel, an NYU law professor. “Nothing is going to stop an American litigant who has bought shares in an American company or a Brazilian company” issuing stock in the United States from questioning the validity of the SEC’s choice of IASB under Section 108 of the Sarbanes-Oxley Act, he said. (Sarbox 108 enables the SEC to designate a standard setting body’s accounting principles as “generally accepted.”).
Indeed, many seem to feel that the SEC is moving ahead too swiftly and without adequate planning for what truly looms as a major step in the direction of converged international accounting standards. Even Financial Accounting Standards Board chairman Robert Herz, perhaps convergence’s prime U.S. spear carrier feels that “a national plan” for convergence needs to be in place before target dates are set. “Before you get to a timetable,” the key players need to determine “what are the tasks to be done.” High on the plan’s priority list should be educational and regulatory requirements. Underscoring the point about education, Nieimeier said in an interview that few people at PCAOB understand IFRS.
Nevertheless, convergence seems to be proceeding apace. While the SEC has been promoting the idea of installing a single set of international standards for about 20 years, the notion has gone into high gear in the last year, according to John White, the director of corporation finance at the SEC.
The reconciliation proposal, which White and SEC Chief Accountant Conrad Hewitt will present to the commission on Thursday, would create the unprecedented existence of “two co-existing financial reporting systems in the U.S.,” White said at a Financial Executives International conference in New York earlier this week. In developing the proposal, he said, the commission had three questions to answer:
• Is there a satisfactory convergence process in place?
• Are International Financial Reporting Standards being consistently and faithfully applied?
• Is IASB up to the job of setting global financial accounting strictures?
The commission is apparently satisfied enough with the answers to go ahead with at least the first step. The percentage of public issuers in the United States that will be affected is modest, however. Just 1,100 companies out of the 11,000 entities that report their financials to the SEC are foreign issuers, and only 200 of them use GAAP. Of the remaining 900 foreign companies required to file a GAAP reconcilation report, up to 180 may qualify to take advantage of the proposal if they file their financial reports using the IASB’s version of IFRS.
DO YOU HEAR YOUR POL SHOUTING THAT OBAMA AND NEO-LIBERALS ARE DISMANTLING ACCOUNTING REGULATIONS JUST AS CLINTON DEMANTLED BANK REGULATIONS MAKING IT HARDER FOR THE PUBLIC TO CONVICT IN ACCOUNTING FRAUD?
I want to take a few days to look at the state of US banks several years after the massive frauds were discovered and brought down the US economy. Bank of America and Citibank were to too largest pushers and processors of subprime mortgage loans and Citibank's CEO Robert Rubin was of course Bill Clinton's finance chief when all of the bank deregulation and breaking of Glass Steagall occurred. It is reasonable to assume the overall plan to blow up the US real estate market was in full swing as Clinton was creating the structures for what is now global Wall Street. The reason Citi and BOA are of importance is that they are the ZOMBIE banks....the ones that Rule of Law would have required be nationalized and taken into bankruptcy so that all assets could be sent back to creditors and victims of mortgage fraud.
THIS IS WHAT RULE OF LAW REQUIRED BECAUSE OF THE UNQUESTIONABLE PROOF OF MASSIVE AND SYSTEMIC FRAUD.
That of course did not happen and we have yet to get justice with these two banks. Mind you, Wells Fargo and the other big banks are equally guilty but CITI and BOA need to go. Most economists agree that nationalizing these banks to recover fraud would not have had much more of an effect on the economy than the current stagnant and crippled economy we have today. The second piece to this of which I've spoken earlier is that the movement of US private and public pensions from the then safety of the bond market to the stock market in 2007-2008 was done to buoy these collapsing banks. Many of US pension money is still attached to the worst of criminal banks. Rather than bring these banks into bankruptcy and transfer lost pension wealth to worker's, the pensioners are being told the gains of the BULL market these few years has made up the losses----only, it hasn't.
Below you see that yet another illegal game was played at the time of the crash simply to make these banks appear viable. The idea was pretend they are OK and they can go overseas to amass new profits. The idea was to allow the FED policy of QE take trillions of dollars of those bad loans off bank accounts to make them look healthier----the FED with $4 trillion in debt has been heard to say they will pass all that debt from fraudulent loans over to the US Treasury-----AKA, THE TAXPAYER. The FED has reached its limit of debt that can be sustained, the massive transfer of bundled foreclosures has mostly finished (round two of the massive subprime mortgage fraud) so talk moves to reversing the policies that allowed these banks to hide debt and look healthy.
GOODBYE PENSION GAINS FROM THE LAST SEVERAL YEARS----IT WAS ALL FRAUD AND MISREPRESENTATION YET AGAIN. JUST AS THE WALL STREET RATING AGENCIES GOT OFF SCOTT FREE FOR FRAUDULENTLY GIVING 'AAA' RATINGS TO THESE SUBPRIME LOANS---NOW BANK OF AMERICA AND CITIBANK WILL BE ALLOWED TO REVERSE THE ACCOUNTING TRICKS THAT FALSIFIED THEIR VALUE FOR YEARS AFTER THE CRASH-----ALL INVOLVING FRAUD AND CORRUPTION.
'And how did it err? It says that it properly raised its reported capital levels to offset the reported loss caused by unrealized changes in the valuation of the securities it had issued. But it also raised the capital levels to offset losses that had been realized, something it should not have done. The realized changes came when securities issued by the bank were paid at maturity or repurchased at an earlier date.
That mistake improperly increased its reported capital.
Bank of America did not explain how that the error came to happen or how it was repeated year after year. Nor did it explain why the error was discovered when the first-quarter financial statements for this year were being prepared'.
What all the US big banks did-----BOA and CITI especially ----was to leave the GAAP accounting principles method of recording debt and used an accounting model that allowed it to hide all the subprime mortgage loan and other debt making it look healthier than it was. You then watch TV commercies toting BOA and CITI as strong and profitable banks as they expanded overseas when in fact they had enormous debt. Again, these banks were allowed to provide false information to investors to attain business just as happened with the subprime loans.
ALL OF THIS IS FRAUD AND ALL OF THIS PLACES THE PEOPLE'S WEALTH AND INVESTMENTS IN CONSTANT RISK.
Generally Accepted Accounting Principles (United States)
From Wikipedia
Accounting standards have historically been set by the American Institute of Certified Public Accountants (AICPA) subject to Securities and Exchange Commission regulations.[4] The AICPA first created the Committee on Accounting Procedure in 1939, and replaced that with the Accounting Principles Board in 1959. In 1973, the Accounting Principles Board was replaced by the Financial Accounting Standards Board (FASB) under the supervision of the Financial Accounting Foundation with the Financial Accounting Standards Advisory Council serving to advise and provide input on the accounting standards.[5] Other organizations involved in determining United States accounting standards include the Governmental Accounting Standards Board (GASB), formed in 1984, and the Public Company Accounting Oversight Board (PCAOB).
Circa 2008, the FASB issued the FASB Accounting Standards Codification, which reorganized the thousands of US GAAP pronouncements into roughly 90 accounting topics[6]
In 2008, the Securities and Exchange Commission issued a preliminary "roadmap" that may lead the United States to abandon Generally Accepted Accounting Principles in the future (to be determined in 2011), and to join more than 100 countries around the world instead in using the London-based International Financial Reporting Standards.[7] As of 2010, the convergence project was underway with the FASB meeting routinely with the IASB.[8] The SEC expressed their aim to fully adopt International Financial Reporting Standards in the U.S. by 2014.[9] With the convergence of the U.S. GAAP and the international IFRS accounting systems, as the highest authority over International Financial Reporting Standards, the International Accounting Standards Board is becoming more important in the United States.
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Just to show how widespread these accounting frauds were----look below at the systemic nature of these frauds. Remember, Enron and its collapse resulted by massive frauds by its accounting firm and back then----Rule of Law held Enron and the accounting firm accountable. That hasn't happened since.
DEREGULATION HAS MADE A WILD WEST OF ALL CORPORATE BEHAVIOR AND THIS HAS OUR ECONOMY AT THIRD WORLD LEVELS OF CORRUPTION.
So, Wall Street banks were allowed to hide massive amounts of debt with accounting tricks and when the FED did the 'STRESS TESTS' that famously allowed banks to exit government control due to BAILOUT in 2009-2010....it was all a lie.
16 Financial Shenanigans That Got Companies Into Tons Of Trouble
Eric Platt and Lucas Kawa Nov. 20, 2012,
Accounting improprieties, disclosure failures, and outright misrepresentations have gotten companies into trouble since the beginning of business. These are the accusations that Hewlett-Packard has made against software company Autonomy.
As the HP story continues to unfold, we are reminded of some past instances when confusing financial and accounting principles got some big companies on the front page for all of the wrong reasons.
In the recent past, companies have been busted for employing questionable accounting tricks, financial engineering, complicated risk metrics, and outright fraud in an effort to hide losses are inflate profits.
Special Purpose Vehicle (SPV) Definition: An SPV is a legal entity typically used to serve as a counterparty with the main corporation. In finance it often used for securitization, but it has also been used to hide risky corporate behavior/transactions and conceal corporate relationships.
Case: The most notorious case of special purpose entities being used to distort a company's obligations is Enron, which filed for bankruptcy in 2001. Enron used SPVs to lower the appearance of its debt load and overstate earnings and equity.
Mark to Market (MTM) AP
Definition: MTM is an accounting measure that values accounts to the current environment. Firms use mark-to-market accounting when the value of an asset or liability moves over time.
Case: Bear Stearns, the now defunct investment bank purchased by JP Morgan, reported in June and July of 2007 that its two main hedge funds (the Bear Stearns High-Grade Structured Credit Fund and High-Grade Structured Credit Enhanced Leveraged Fund) had to mark down nearly all their value, sparking concerns of contagion in the financial crisis. Banks across Wall Street suffered huge paper losses thanks to MTM.
Repo 105 AP Images/ Kristy Wigglesworth
Definition: Repo 105 is an accounting trick that defines a short-term loan as a sale. A company can then use that cash to lower liabilities before paying back the loan with interest. Generally in the repo market, companies will not exchange collateral because the time period is very short.
Case: Lehman Brothers masked extensive liabilities right before quarter-end by using this Repo 105 tactic. The company ultimately filed for bankruptcy and was sold off to different institutions (with most U.S. operations going to Barclays).
Expense Recognition ABetterBagofGroceries.com
Definition: Under generally accepted accounting principals, expenses should be recognized when incurred — not necessarily when the payment is made. This is known as the expense recognition principle.
Case: Diamond Foods allegedly shifted payments to walnut growers to later periods to offset costs during its fiscal 2011 year, inflating earnings as it entered negotiations with Proctor & Gamble. The stock transaction depended heavily on Diamond's share price.
Revenue Recognition haccamopooly/flickr
Definition: Under generally accepted accounting principals, revenue should be recognized when the company delivers or performs the task it will be paid for — not necessarily when the payment is received. This is known as the revenue recognition principle. However, exceptions do apply.
Case: Xerox settled with the SEC in 2002 for accelerating revenue recognition of equipment sales by more than $3 billion, which increased pre-tax earnings by $1.5 billion. The company, which was supposed to record revenues both upfront and over a period of time (for servicing equipment over its usable life), moved those service revenues to the time of purchase.
Misrepresented Cash Flows Definition: The statement of cash flows is the third major financial statement, which tallies cash generated and spent by a company during a fiscal period. This portion of the financial statement of an earnings release is one of the best ways to gauge a company's solvency and actual performance.
Case: WorldCom used its cash flows statement to hide expenses by marking operating costs, which should have been booked as expenses, as capital investments. Under that plan, WorldCom inflated cash flow by $3.8 billion and posted quarters of positive performance when it really lost money.
Channel Stuffing Krispy Kreme
Definition: Channel stuffing is a practice where a distributor ships retailers excess goods that were not ordered to increase the accounts receivable portion of their balance sheet. Generally, the retailers then ship back the goods and the company must mark them as returns.
Case: Krispy Kreme allegedly sent franchises double their usual shipments at the end of financial quarters so the company could meet Wall Street forecasts. In 2005 the company said it would restate past financial statements.
Hiding Losses in Acquisitions HK-DMZ on flickr
Definition: Companies can pay high prices for financial advice during a merger, and some have used that guise as a method to cover prior losses.
Case: Japanese technology giant Olympus announced it had been hiding losses on securities investments for years by using the cover of acquisitions. When new CEO Michael Woodford called attention to strange payments made in 2008, he was subsequently fired.
Round Trip Trading alan5o5 via Flickr
Definition: This is practice where a firm trades an asset and then buys it back many times to inflate its transaction volume. However, the market-manipulation has no impact on profit (although it will bolster top line results).
Case: Dynegy was forced to pay the SEC $3 million after it was found conducting round trip trades with special purpose entities. According to the SEC, Dynegy's "overstatement of its energy-trading activity resulting from 'round-trip' or 'wash' trades — simultaneous, pre-arranged buy-sell trades of energy with the same counter-party, at the same price and volume, and over the same term, resulting in neither profit nor loss to either transacting party."
Smoothing Earnings Definition: This is a practice where a firm smooths net income by using GAAP techniques to level off fluctuations between periods.
Case: Freddie Mac understated earnings by more than $5 billion over three years to keep earnings consistent and investors happy. According to The New York Times, Freddie Mac lost $111 million during a period it announced net income of nearly $1 billion. Freddie Mac only reported half of what it reported it earned during the third quarter of the year, stating that it earned about $1 billion rather than $2 billion.
Churning Definition: A practice by brokerage houses where they excessively trade securities to generate commission — even when the trades do not benefit the account holder. Similarly, the practice has been conducted by insurance companies by moving clients from one policy to another.
Case: MetLife, just one of a number of insurance companies found guilty of the practice, settled with state regulators and set aside billions for claims that it moved clients from one policy to another, to generate high premiums.
Bartering Boonsri Dickinson, Business Insider
Definition: A transaction where two companies (or people) agree to trade goods or services with each other without the use of currency.
Case: AOL was investigated by the SEC and Justice Department for inflating revenue by using barter trades for online advertising and recognizing the trade as a sale in the period leading up to the merger with Time Warner.
Tax Evasion Philly News
Definition: Pretty simple: an illegal practice where a person or company does not pay the correct tax liabilities owed to the government.
Case: Crazy Eddie, a discount electronics retailer, evaded taxes for years before going public by "skimming and under-reporting income." This was just one of the practices the company used to bolster results.
Back Dating Employee Stock Options Lara604 / Flickr
Definition: The process where a company offers options to an employee at a date before the actual date the option was made. Companies have done this so they can set better exercise prices to the employee (generally pushing the option into the money).
Case: Apple came under scrutiny for back dating options to employees and forced then-CEO Steve Jobs and other Apple executives to pay $14 million, plus attorney fees.
Goodwill Impairments Howard Lake
Definition: Although not illegal, companies have come under pressure from investors for overstating goodwill — which bolsters the balance sheet. Goodwill represents a company's intangible assets (its brand, customer relations, etc.) and often arises during a merger or acquisition.
Case: Green Mountain came under fire for its accounting of goodwill during its acquisition of Van Houtte and how its jump in assets was mainly attributable to that line item on the balance sheet.
Value at Risk (VAR) Chris McGrath/Getty Images
A sign on the outside of a Chase bank branch in New York City.
Definition: A tool used by financial institutions that estimates probable losses based on historic trends, prices and volatility. Firms generally report VAR data at quarter-end, with confidence intervals, and for periods stretching from one day to two weeks.
Case: JP Morgan is under intense scrutiny after reporting a $2 billion loss after publishing a VAR of just $76 million a quarter earlier for its entire credit portfolio. At that pace, the entire JP Morgan unit could have lost as much as $76 million in value in any given day (to a 95 percent confidence interval).
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Remember, these pensions were deliberately thrown into the stock market as it crashed just to buoy these big banks. This is fraud and public malfeasance on the part of public pensions. What will double-down on these losses if the fact that all the gains from the stock market these few years are masked by hidden debt----no real gains.
Pension fund managers were part of sending these pensions into a crashing market and as of yet very little justice has come from all these massive pension losses. Below you see movement by pension funds to recover losses but as of yet-----the same small settlements bring nearly nothing back. When Bank of America is forced to stop using the accounting methods hiding its debt-----stock values will fall once again. This article highlights the ongoing fraud as these foreclosure proceedings were handled as badly.
KEEP IN MIND THIS IS NOW HAPPENING IN THE OBAMA ADMINISTRATION AND A DEMOCRATIC MAJORITY IN THE SENATE AS ARE ALL POLITICIANS ARE SILENT. CAN YOU IMAGINE IF ALL OF CONGRESS SHOUTED LOUDLY TO GIVE CITIZENS JUSTICE ----- THAT IT WOULD HAPPEN.
This is how we know we have corporate pols running as democrats-----NEO-LIBERALS.
Biggest US Pension Funds Get Into Fraudclosure Fray, Demand Banks "Immediately Examine Foreclosure Practices"
Submitted by Tyler Durden on 01/09/2011 20:13 -0400
More bad news for the BofA/Wells syndicate. After on Friday two of the biggest mortgage lenders in the world were hit with bad news out of the Massachusetts supreme court, today it is seven of the nation's major pension funds, between them representing nearly half a trillion in capital, which are demanding that "the boards of directors of Bank of America, Citigroup, JP Morgan Chase, and Wells Fargo immediately undertake independent examinations of the banks’ mortgage and foreclosure practices." The coalition of pension funds called for the banks’ Audit Committees to launch independent examinations of their loan modification, foreclosure, and securitization policies and procedures. “This will help to prevent future compliance failures and restore the confidence of shareholders, regulators, legislators and mortgage markets participants,” the coalition advised in its letter. The coalition members’ insistence on immediate action reflects the urgency of their concerns over mishandled mortgages. But Jim Cramer on Friday said there was no urgency, and no reason to be concerned, and that this is nothing but a buying opportunity for the lemmings which jut got one step closer to the cliff.
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Let's be clear----there were trillions of dollars in subprime mortgage fraud. The number of homes in America involved was massive. The reason this fraud was allowed to continue and goes without justice is the goal of this entire scheme was to remove the American people from homeownership----
THE EQUITY WE THE PEOPLE GAINED OVER DECADES OF SAVING AND INVESTMENT.
I want people who are still losing their homes to foreclosure....and Maryland is ground zero for this.....that damages to the US economy from this massive fraud need to extend to families facing long term unemployment and are now losing their homes.
Remember, all US big banks are still responsible for massive fraud but BOA and CITIBANK were the ringleaders.
Bank of America: Too Crooked to Fail The bank has defrauded everyone from investors and insurers to homeowners and the unemployed. So why does the government keep bailing it out?
By Matt Taibbi March 14, 2012 10:55 AM ET
Rolling Stone
At least Bank of America got its name right. The ultimate Too Big to Fail bank really is America, a hypergluttonous ward of the state whose limitless fraud and criminal conspiracies we'll all be paying for until the end of time. Did you hear about the plot to rig global interest rates? The $137 million fine for bilking needy schools and cities? The ingenious plan to suck multiple fees out of the unemployment checks of jobless workers? Take your eyes off them for 10 seconds and guaranteed, they'll be into some shit again: This bank is like the world's worst-behaved teenager, taking your car and running over kittens and fire hydrants on the way to Vegas for the weekend, maxing out your credit cards in the three days you spend at your aunt's funeral. They're out of control, yet they'll never do time or go out of business, because the government remains creepily committed to their survival, like overindulgent parents who refuse to believe their 40-year-old live-at-home son could possibly be responsible for those dead hookers in the backyard.
It's been four years since the government, in the name of preventing a depression, saved this megabank from ruin by pumping $45 billion of taxpayer money into its arm. Since then, the Obama administration has looked the other way as the bank committed an astonishing variety of crimes – some elaborate and brilliant in their conception, some so crude that they'd be beneath your average street thug. Bank of America has systematically ripped off almost everyone with whom it has a significant business relationship, cheating investors, insurers, depositors, homeowners, shareholders, pensioners and taxpayers. It brought tens of thousands of Americans to foreclosure court using bogus, "robo-signed" evidence – a type of mass perjury that it helped pioneer. It hawked worthless mortgages to dozens of unions and state pension funds, draining them of hundreds of millions in value. And when it wasn't ripping off workers and pensioners, it was helping to push insurance giants like AMBAC into bankruptcy by fraudulently inducing them to spend hundreds of millions insuring those same worthless mortgages.
But despite being the very definition of an unaccountable corporate villain, Bank of America is now bigger and more dangerous than ever. It controls more than 12 percent of America's bank deposits (skirting a federal law designed to prohibit any firm from controlling more than 10 percent), as well as 17 percent of all American home mortgages. By looking the other way and rewarding the bank's bad behavior with a massive government bailout, we actually allowed a huge financial company to not just grow so big that its collapse would imperil the whole economy, but to get away with any and all crimes it might commit. Too Big to Fail is one thing; it's also far too corrupt to survive.
All the government bailouts succeeded in doing was to make the bank even more prone to catastrophic failure – and now that catastrophe might finally be at hand. Bank of America's share price has plunged into the single digits, and the bank faces battles in courtrooms all over America to avoid paying back the hundreds of billions it stole from everyone in sight. Its credit rating, already downgraded to a few rungs above junk status, could plummet with the next bad analyst report, causing a frenzied rush to the exits by creditors, investors and stockholders – an institutional run on the bank.
They're in deep trouble, but they won't die, because our current president, like the last one, apparently believes it's better to project a false image of financial soundness than to allow one of our oligarchic banks to collapse under the weight of its own corruption. Last year, the Federal Reserve allowed Bank of America to move a huge portfolio of dangerous bets into a side of the company that happens to be FDIC-insured, putting all of us on the hook for as much as $55 trillion in irresponsible gambles. Then, in February, the Justice Department's so-called foreclosure settlement, which will supposedly provide $26 billion in relief for ripped-off homeowners, actually rewarded the bank with a legal waiver that will allow it to escape untold billions in lawsuits. And this month the Fed will release the results of its annual stress test, in which the bank will once again be permitted to perpetuate its fiction of solvency by grossly overrating the mountains of toxic loans on its books. At this point, the rescue effort is so sweeping and elaborate that it goes far beyond simply gouging the tax dollars of millions of struggling families, many of whom have already been ripped off by the bank – it's making the government, and by extension all of us, full-blown accomplices to the fraud.
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Here you see while Bank of America was known to be in debt of a trillion or more in US fraud....it took its bailout money and expanded overseas where it invests in more high-risk and leverage as much as before the crash. As this article shows, the Chinese are creating the environment that will hasten a collapse in our US economy this year.
Bank of America advises China default contracts to hedge debt storm Chinese bond yields have already risen to the highest in a decade yet markets remain “complacent” about the implications Bank of America's Bin Yao says markets have underestimated the risk of a monetary squeeze
Photo: EPA By Ambrose Evans-Pritchard
2:15PM GMT 13 Dec 2013
Bank of America has advised clients to take out default insurance against Chinese debt, warning that monetary tightening by China’s central bank risks setting off a bout of serious credit stress in 2014.
Bin Yao, the bank’s credit strategist in Asia, said Chinese bond yields have already risen to the highest in a decade as the authorities seek to rein in rampant growth of the M2 money supply and excess credit, yet markets remain “complacent” about the implications.
He recommends buying credit default swaps (CDS) on five-year Chinese debt as the easiest way to “hedge the China tail risk”. These contracts spiked to 266 after the Lehman crisis and again to 206 during the ‘hard-landing scare’ of late 2011. They have since settled down to stable levels, trading this week near 66.
Bin Yao said the markets have underestimated the risk of a monetary squeeze. The central bank has already raised interest rates by three quarters of a point over the last year. Rising yields are pushing the shadow banking system closer to the brink. “We find trust loans especially troubling,” he said.
Short-term debt issuance by trust companies has jumped to $320bn from almost zero two years ago. A new study by the China Academy of Financial Research warned that the trusts face a redemption shock after promising returns of 10pc to 15pc that may be impossible to deliver.
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The American accounting system GAAP is just too burdensome with all of the defined rules that allowed accounting fraud to be easily investigated and prosecuted. That is why we need to go with this International Accounting Standard. In order to successfully break from any ability of the public to prosecute fraud as happened with Enron and Aurthur Anderson Accounting, the ability of Americans to file lawsuits for accounting irregularities must be curtailed.
So, they are doing to the accounting sector what was done with the financial deregulation by adopting this International system with much weaker and broadly defined rules.
MIND YOU----THIS IS OBAMA AND A MAJORITY CONTROLLED CONGRESS ALLOWING THIS. THE SECURITY AND EXCHANGE COMMISSION IS ACTING WITHOUT ANY THOUGHT OF PUBLIC INTEREST. THAT IS A NEO-LIBERAL FOR YOU!
DO YOU HEAR YOUR POLS SHOUTING AGAINST THIS????
The Dark Side of Global Accounting Standards
Expect loose standard-setting in the oil and gas industries and a ton of litigation if convergence hurtles down its current track, critics say.
If the Securities and Exchange Commission on Thursday votes as expected and allows non-U.S. issuers here to report their financials in line with International Financial Reporting Standards without reconciling them with Generally Accepted Accounting Principles, the United States will have crossed a point of no return in the movement toward a single set of global accounting standards, some experts feel.
But that doesn’t mean that many key players won’t cross that line without a fair amount of kicking and screaming.
Speaking at a roundtable discussion on global accounting standards at New York University’s Stern School of Business on Monday, Charles Niemeier, a member and former acting chair of the Public Company Accounting Oversight Board, said that he was “a bit troubled by the speed” of the SEC’s march toward the convergence of U.S. and international accounting standards. “If we eliminate reconciliation, what have we done? I have some fear that we’re crossing the Rubicon — that we’ve lost leverage in order to get closer [to global uniformity].”
Leverage by U.S. regulators and standard-setters to push for rigor in converged standards could be lost, as well as the clout to hold individual companies to international rules, Niemeier told CFO.com. At the roundtable, the audit firm overseer disputed a basic premise of the proponents of convergence: that if the international standards are adopted in the United States, it would produce a clearer system based on solid principles rather than rule-based minutiae. “Some say Europe is principles-based. I beg to differ. It’s younger,” he said, suggesting that much of the detail in GAAP is justified by long-standing experience. Some speakers said that IFRS lacks the detail provided under GAAP to provide adequate financial reporting in a number of specific industries in the United States, particularly oil and gas and insurance.
By contrast, critics of U.S. GAAP’s complexity, including the SEC’s own advisory committee, consider industry specific guidance to be one of the U.S. accounting system’s major flaws.
At the same time, many roundtable participants worried that the U.S. legal system — also blamed for the complexity of U.S. GAAP — might trip up global accounting standards too. Under the U.S. legal system, they said, auditors feel they must adhere closely to preset rules in order to avoid being sued. In order for IFRS to take hold in the United States, there needs to be “a change in the way we look at litigation in America, where it’s a mark of honor to sue someone,” said Stern accounting professor Seymour Jones at the roundtable.
Even a decision by the SEC to recognize the International Accounting Standards Board (which sets IFRS) as a bona fide standards setter could get tested in a U.S. court, according to Stanley Siegel, an NYU law professor. “Nothing is going to stop an American litigant who has bought shares in an American company or a Brazilian company” issuing stock in the United States from questioning the validity of the SEC’s choice of IASB under Section 108 of the Sarbanes-Oxley Act, he said. (Sarbox 108 enables the SEC to designate a standard setting body’s accounting principles as “generally accepted.”).
Indeed, many seem to feel that the SEC is moving ahead too swiftly and without adequate planning for what truly looms as a major step in the direction of converged international accounting standards. Even Financial Accounting Standards Board chairman Robert Herz, perhaps convergence’s prime U.S. spear carrier feels that “a national plan” for convergence needs to be in place before target dates are set. “Before you get to a timetable,” the key players need to determine “what are the tasks to be done.” High on the plan’s priority list should be educational and regulatory requirements. Underscoring the point about education, Nieimeier said in an interview that few people at PCAOB understand IFRS.
Nevertheless, convergence seems to be proceeding apace. While the SEC has been promoting the idea of installing a single set of international standards for about 20 years, the notion has gone into high gear in the last year, according to John White, the director of corporation finance at the SEC.
The reconciliation proposal, which White and SEC Chief Accountant Conrad Hewitt will present to the commission on Thursday, would create the unprecedented existence of “two co-existing financial reporting systems in the U.S.,” White said at a Financial Executives International conference in New York earlier this week. In developing the proposal, he said, the commission had three questions to answer:
• Is there a satisfactory convergence process in place?
• Are International Financial Reporting Standards being consistently and faithfully applied?
• Is IASB up to the job of setting global financial accounting strictures?
The commission is apparently satisfied enough with the answers to go ahead with at least the first step. The percentage of public issuers in the United States that will be affected is modest, however. Just 1,100 companies out of the 11,000 entities that report their financials to the SEC are foreign issuers, and only 200 of them use GAAP. Of the remaining 900 foreign companies required to file a GAAP reconcilation report, up to 180 may qualify to take advantage of the proposal if they file their financial reports using the IASB’s version of IFRS.
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