Mark Sunshine

Securitization Accounting Rules Changing, But Interagency Action Necessary

Gtarras,

Thanks for your comments. I think you are "right on the money".

I am not totally current in the Basel rules as they apply to this area. They are very technical and very detailed. But my impression is that they fostered the orphan subs of the european ABSCP operations.

Do you agree?

Securitization Accounting Rules Changing, But Interagency Action Necessary

levin70

I appreciate your comments. Perhaps I should have been a little clearer. I taught accounting at the college level and spent 25+ years (starting in the early 1980's) acting as a securitization lawyer, banker and issuer. I won two IDD Deal of the Year Awards for innovative securitizations and have literally executed thousands of these transactions. I have testified in well known trials on substantive consolidation matters (as an expert). The company that I am currently the President of is a frequent issuer of securitizations (even during 2008 and 2009).

I am as good an expert as they come on securitization and if I have a tough time understanding securitization accounting rules the average investor (who doesn't have my training and experience) doesn't stand a chance. I may not be the smartest guy or the best accountant but my level of training can't be the standard to understand the accounting on trillions of dollars of financings and their impact on issuers.

If you were to accuse me of hubris it would be for thinking that if I can't easily figure something like out FAS 140 and FIN 46 it is too complicated for the average investor.

I believe that the majority of CFO's, CEO's and CPA's that rely upon FAS 140 and FIN 46 don't have a clue what the rules say or how to correctly apply them. I have found that when I question the application of those accounting rules I most often get fuzzy and inconsistent answers that indicate that management and the auditors don't understand it any better than I do.

The reason that I don't understand the rules is that they are incomprehensible and inconsistently applied. They were a response to the Enron (and other) problems and weren't well thought out. I assume that is the same reason others don't understand.

And, because the rules of the last 5 or 6 years were overly complicated and inconsistently applied, transparency hasn't been achieved.

Also, I know that the SEC has the power to sign off on public company financial accounting standards (I am a securities lawyer after all). However, it has been many years since the SEC has exerted that authority in any meaningful way. And, while the SEC has technical authority to change FASB pronouncements, their authority doens't extend to regulatory accounting principals (those are the rules that apply to banks and other depositories for figuring out whether or not they meet capital adequacy standards) or statutory accounting principals (those are the similar rules that apply to insurance companies). Without conforming changes to those regulatory and statutory rules havoc may ensue among regulated institutions. Also, it would be nice if the SEC used its authority to reign in FASB so that the amendments to FAS 140 and FIN 46 make sense.

I realize it is a little unusual for someone to actually admit that they have trouble understanding something like FAS 140 or FIN 46. After all, by making that admission I have opened myself up to ridicule. But I feel comfortable that my level of expertise and record of accomplishment is extensive enough that it will stand up to examination and most readers will hopefully realize that my statements are not frivolous. However, I accept that there are some readers who will reject what I have written and accuse me of incompetence.

Levin70, thanks for reading and I hope you reconsider your position.



On May 28 12:30 PM levin70 wrote:

> "I don’t know what this all means because I never understood the
> old rules and don’t know what the new rules will do to financial
> reporting."
>
> Mark - its nice you own up to knowing nothing about the subject.
> However, given that fact, I find your desire to write the President
> about your ideas on how to fix a problem about a subject you know
> nothing about, pure hubris. Btw, the SEC, one of the "intergovenmental"
> agencies you want in the decision making process, is actually required
> to sign off on the new standard, as the SEC oversees all FASB pronouncements
> as they relates to US reporting companies.
>
> Please try harder