AIG Lobbied Congress to Ease Accounting Rules, FASB Chief Says

By | June 29, 2009

The top U.S. accounting rulemaker denounced the “politicization” of accounting standards on Friday, three months after he was pressured by Congress to make changes that would help banks’ results.

Financial Accounting Standards Board Chairman Robert Herz said lobbying by special interests undermines public confidence in the integrity of financial reporting.

“The investing public expects and deserves unbiased and transparent financial information that is not skewed to favor particular transactions, companies or industries,” Herz said during an appearance at the National Press Club.

FASB was pressured earlier this year by Congress and the banking industry to modify the controversial mark-to-market accounting standard, which forced banks to record billions of dollars in write-downs.

Herz did not speak specifically about those congressional efforts, pressure that included a threat of legislation to change the rule.

Early in April, FASB relaxed the mark-to-market rules, which require assets to be valued at what they would fetch in a current market transaction. It also issued guidance that would let lenders take smaller losses on impaired assets such as mortgage-backed securities.

Herz said some major companies, including federal bailout recipient American International Group Inc., had sought political intervention into accounting standards.

“While that is their right… politicization of accounting standard setting by special interest risks undermining public confidence,” he said.

Herz said about a year ago, AIG’s then-Chief Executive Martin Sullivan spent time in Washington trying to convince lawmakers there were no problems with the insurer’s credit default swaps and that it was “all this bogus fair value (mark-to-market) accounting.”

The federal government has since used billions of dollars in taxpayer funds to prop up AIG, which nearly collapsed because of its exposure to credit default swaps.

Now business groups are eyeing another set of FASB rules that could could force banks to move more off-balance sheet assets onto their books when they take effect in 2010.

Asked if he expected another effort to get FASB to soften its stance, Herz reiterated that the new off-balance sheet rules “become final next year.”

In his remarks, Herz also made a case for a greater decoupling of accounting standards and how bank regulators determine how much capital banks must hold.

Bank regulators and accounting rulemakers have different missions and thus have different perspectives on accounting for financial institutions, he said.

The primary mission of bank regulators is to focus on the safety and soundness of a financial institution, protect customer deposits and the overall stability of the financial system. Accounting rulemakers set standards so that financial information on companies’ performance is communicated clearly to investors and capital markets.

“In some cases, a single accounting or reporting treatment may not properly achieve the objectives of both the regulators and reporting to investors and the capital markets,” Herz said.

(Reporting by Rachelle Younglai; Editing by Tim Dobbyn and Gerald E. McCormick)

Topics Legislation AIG

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