As we embark down the path of sweeping regulatory reform of the US financial system, it useful to review the results of the previous reform. Supposedly, accounting standards were overhauled and clarified under the Sarbanes-Oxley Act of 2002 to prevent companies from using accounting trickery to obscure their published financial results.
In recent days, a number of financial blogs have been agonizing over a letter from the SEC to certain public companies on SFAS 157, a new accounting rule for valuing asset backed securities such as those backed by collapsing mortgages. The SEC letter is supposed to clear up confusion over the rule, but it so poorly written and convoluted that companies are having difficulty interpreting it. Some are reading it in totally conflicting ways.
Read it yourself and see if you can make any sense of it.
Frustrated observers have taken to mocking the signature on the letter by a “Senior Assistant Chief Accountant,” which does little to clarify the letter’s authority.
People like the author of this letter are to be given enhanced new regulatory powers in the next wave of reform in order to prevent “the next Bear Stearns,” which previous attempts at regulatory reform have failed to even diagnose properly.
