SEC 'concerned' about FAS 159

News Article - 18 April 2007
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America's Securities and Exchange Commission (SEC) has voiced concerns that auditors may be taking advantage of financial accounting standard (FAS) 159, known as the 'fair value option'.

The standard governs how businesses record the value of financial instruments based on their worth in current market transaction, Reuters reports.

Some financial providers and banks may find that the standard presents an opportunity to avoid recognising losses through retained earnings, the SEC has said.

Accountancy firm McGladrey & Pullen said: "The SEC staff is very concerned about engineered transactions designed to get an accounting result."

It added that the commission was "skeptical" of strategies lacking in substance or involving using the standard with the intention of settling liabilities or disposing of assets.

Reuters reports that the early adoption period of the rule has coincided with the decline in the sub-prime mortgage sector, which may give some financial institutions reason to hide their losses.

The FAS 159 document was issued in February this year for adoption by entities at the beginning of their first fiscal year starting after November 15th 2007.

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