Counting Change

The nation’s chief accountant is stepping down. What does it mean for investors?

Robert Hetz, the Chairman of the Financial Accounting Standards Board, is stepping down as its chief two years ahead of schedule. This comes at a time of tremendous financial uncertainty and as the body is enmeshed in a battle over expanding the use of mark-to-market accounting, which requires companies to use market prices rather than management estimates to value financial holdings.

The fight over mark-to-market has been every bit as contentious as the Mr. Hetz’s signature battle, the struggle to get executive options grants into the income statement. At one hearing on that issue held back in the ‘90s in California, opponents of expensing options had a high-school marching band accompany protesters outside the meeting. Accounting can get people riled up.

The accounting controversies of today are every bit as volatile. The mark-to-market controversy has been derided by both sides, with cost-based pricing disparaged as “mark-to-make-believe,” and the market-pricing approach criticized as “managing for liquidation.” Mr. Hetz had some tough times in 2009 when Congress grilled him over rules for banks. Those rules were subsequently adjusted.

For now, any changes in accounting rules are on hold as the FAS looks for a replacement. As the markets roil over economics and the risk of a double dip, one thing is certain: accounting counts.

Douglas R. Tengdin, CFA
Chief Investment Officer
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