Monday, January 26, 2009

PwC Proposal on Fair Value Accounting

PwC has released a discussion paper proposing changes to fair value accounting. According to Castle Hall Alternatives, they do not propose eliminating fair value accounting - thankfully - but they do suggest that, for banks, only "credit related" losses be reflected in net income (this is, of course, the headline number that everyone focuses on for publicly traded entities.) Other changes in current market value unrelated to the borrower's ability to repay a loan, such as write downs due to an illiquid or dysfunctional market, would be recorded in "other comprehensive income". OCI is essentially a bucket for items that companies don't want to pass through their reported, "business" P&L.

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