Archive for setembro \30\UTC 2008

Defesa da contabilidade 2

setembro 30, 2008

After the Deal, the Focus Will Shift to Regulation
By FLOYD NORRIS
29 September 2008
The New York Times
Late Edition – Final
1

Even before Congress passes a $700 billion bank bailout that nearly all legislators believe to be both necessary and unpopular, the jostling has begun over legislation that may prove to be the first test for the next president: How to reshape the financial system and its regulation.

It is clear that the old system failed — it wouldn’t need the bailout otherwise — but the diagnosis of why that happened may be crucial in deciding what changes are needed.

Already, liberals are blaming the deregulation that began under Ronald Reagan for letting a financial system get out of control, and conservatives are pointing to market interventions by liberals — notably efforts to assure mortgage loans for the poor and minorities — as being the root cause of the mess.

Conservatives are also pointing to accounting rules, which forced banks to write down the value of their loans, and to excesses by Fannie Mae and Freddie Mac, the government-sponsored mortgage enterprises that have since been nationalized, whose troubles they have tried to tie to Democrats.

Both sides roundly denounce Wall Street greed, but there is no clear legislative solution to that, so such rhetoric is more likely to shape the campaign than the postelection legislative battle.

When the liberals talk about deregulation, they most often point to the Gramm-Leach-Bliley Act of 1999, which tore down the last remaining walls between commercial banks and investment banks.

But there is little evidence to tie much of the problem to that law. Most of the walls, erected during the Depression, had already been breached over many years, with the approval of regulators. Besides, the first major failures of this crisis, Bear Stearns and Lehman Brothers, were investment banks that did not go into commercial banking in a big way.

Instead, it might be more appropriate to describe the problem as ”unregulation.” That regulation was scaled back was less of a factor than Wall Street’s finding ways around regulation by establishing new products that could work between the cracks. Those new products grew to dominate the financial system, and they turned out to be prone to collapse.

Both parties bear responsibility for that, because there was little controversy over it when it was happening. Alan Greenspan, then the chairman of the Federal Reserve, believed that the new products could distribute risk to investors, who were better able to bear it than was the banking system he was charged with regulating, and few legislators were willing to challenge Mr. Greenspan on what appeared to be an arcane issue.

But the family that can take the most credit for that is the Gramms, Phil and Wendy. It was Wendy Gramm, as chairwoman of the Commodity Futures Trading Commission in the early 1990s, who championed keeping her agency out of derivative trading. It was Phil Gramm, as the chairman of the Senate Banking Committee, who pushed through legislation in 2000 to assure that no future C.F.T.C., let alone any other regulator, would have jurisdiction over such products.

At the same time that the credit-default swap market was growing, so were hedge funds, which became behemoths that were largely exempt from any regulation.

The logic behind both of those decisions was that regulation was about protecting individual investors. Because small investors could not invest in hedge funds or mortgage-backed securities or credit-default swaps, the government had no reason to interfere with private enterprise.

It turns out that those products could threaten the entire financial system, and their abuse could produce a credit crisis affecting virtually everyone.

One obvious answer is that the new regulation system should not have so many loopholes. It is possible that the old markets and old products do have too much regulation, and that deregulation in some areas would be appropriate. But the guiding principle should be that similar products and similar institutions deserve similar regulation. If large institutional investors are required to disclose their positions every quarter, why should large hedge funds be treated differently?

That principle will need to be applied internationally as well, which will require diplomacy and a willingness to consider views of governments that are much less sympathetic to financial innovation.

The growth of the new financial system also tends to undermine the conservative argument that much of the problem can be traced to the Community Reinvestment Act, which was passed by Congress in 1977. It has been cited by some bankers as a reason they made what turned out to be bad loans, but most of the worst loans appear to have been made outside of the banking system, by mortgage brokers not subject to its rules.

Similarly, Fannie Mae and Freddie Mac undoubtedly bought many loans that should not have been made. But the worst loans were privately syndicated and snapped up by investors.

The accounting rule requiring banks to mark their assets to their market value has been widely blamed for producing losses that alarmed investors. Newt Gingrich, the former House speaker, said Sunday on the ABC program ”This Week” that ”between half to 70 percent of the problem” was caused by the rule, and some Republican legislators pushed to have the bailout bill suspend the rule.

But if one wants to look at accounting rules as a cause, it would be more productive to examine the rules that permitted the crisis to grow without being noticed, not at the rule that finally brought the truth to public attention.

When the Financial Accounting Standards Board met after the Enron scandal to tighten the rules over off-balance-sheet entities, it permitted banks to continue keeping many assets off their balance sheets, under rules that now — belatedly — are being changed. Out of sight should not have meant out of mind, as many of the off-balance-sheet items have produced major losses.

Similarly, the rules permitted banks to turn groups of mortgages into securities and report profits even though they retained some of the risk that the mortgages would go bad. By underestimating that risk, the banks reported higher profits than they should have, and the executives qualified for larger bonuses. Many of the recent losses are just reversing profits that, in reality, were never earned.

In any case, it is too late to abandon mark-to-market accounting. Just how reassuring to investors would it be for the government to issue a rule saying it is O.K. for banks to value assets for far more than anyone would pay for them?

Perhaps the most important cause of this disaster is one that probably does not need legislation: belief in so-called rocket scientists and their computer models, which used the past to forecast the future, and did so with complete, and completely unjustified, assurance.

It was that faith that led rating agencies to give top-grade classification to securities that were in fact very risky and led investors to buy them. It was that faith that led regulators to defer to the banks’ own risk models in determining how much capital they needed. It was that faith that led senior managements of Wall Street firms — many of whom had only a general understanding of what their traders were doing — to assume that risk was under control when it was not.

That faith is gone now. It will not come back soon.

The legislation next year will shape the efforts of the American financial system to right itself, and to provide credit to families and businesses without taking undue risks that can again threaten to destroy the system. The details of those decisions will be far more important than the details of the bailout that is about to be approved.

Defesa da contabilidade

setembro 30, 2008

Broad Authority, Lots of Money And Uncertainty
Binyamin Appelbaum, David Cho and Neil Irwin
Washington Post Staff Writers
29 September 2008
The Washington Post
FINAL
A01

Congress is on the verge of granting Treasury Secretary Henry M. Paulson Jr. sweeping powers to stabilize the nation’s financial system. He would stand largely unfettered by traditional rules, largely unrestricted in his ability to spend $700 billion of federal money.

The Treasury Department would decide what kind of assets to buy, and which financial firms could sell them. It would decide how much to pay. And it would hire firms to manage its acquisitions, without having to obey the normal rules for hiring contractors. These decisions would take several weeks, Paulson said.

The results will determine whether $700 billion is enough to end the financial crisis.

“This is really an unusual situation, a highly unusual situation. And we need flexibility, we need a variety of tools, we need to figure out how to get out there in weeks,” Paulson said in an interview last night.

It is not clear how patiently investors and depositors in troubled institutions will wait. Nor is it clear whether, in the meantime, the banking system itself will begin to recover from the uncertainty that is freezing the flow of loans to major corporations, small businesses and individuals.

Two European banks moved toward failure over the weekend: Bradford & Bingley, a British mortgage lender, and Fortis, a giant banking and insurance company based in Belgium. Several American institutions continue to teeter.

The legislation, which the House is expected to vote on today, is the latest in a series of government efforts to stem the wave of financial failures, which started with large numbers of Americans losing their homes to foreclosure. The bill allows the Treasury Department to buy mortgage-related securities devalued by those foreclosures in hopes of leaving troubled financial institutions with fewer problems and more cash.

With the political process nearly complete, the work of helping the financial markets has only just begun. The most critical decision facing the Treasury is how to go about buying troubled assets. Officials say the department may well use different approaches for different kinds of assets, rather than pursuing a uniform strategy.

The goal is not to vacuum all the industry’s troubled assets into a federal holding tank. Rather, the government wants to determine credible prices for the assets held by banks, through the mechanism of buying some of those assets. If the plan succeeds, the prices paid by the government will become a new market standard, bridging the current gap between the higher prices sought by banks and the lower prices offered by investors.

“We need confidence, and this is about confidence,” Paulson said.

In a practical sense, the government is trying to revive the markets because buying up all the troubled assets would require far more than $700 billion.

Twenty of the nation’s largest financial institutions owned a combined total of $2.3 trillion in mortgages as of June 30. They owned another $1.2 trillion of mortgage-backed securities. And they reported selling another $1.2 trillion in mortgage-related investments on which they retained hundreds of billions of dollars in potential liability, according to filings the firms made with regulatory agencies. The numbers do not include investments derived from mortgages in more complicated ways, such as collateralized debt obligations.

Experts say the Treasury plan could do more harm than good.

If the Treasury pushes to buy troubled assets at bargain-basement prices, many banks that hold similar assets would be forced to mark down their holdings. Such losses could push some institutions over the edge.

If the Treasury overpays, taxpayers could lose massive sums.

“There are more questions of doing this and the consequence of doing it poorly than anything else,” said Richard H. Baker, a former Congressman and the chief executive of the Managed Funds Association, which lobbies for hedge funds.

Baker recalled during the savings and loan crisis of the late 1980s and early 1990s, the government set up the Resolution Trust Corp. to buy real estate and other assets of banks that went into bankruptcy. The RTC eventually sold some of these properties at such severe discounts in Baker’s home state of Louisiana that real estate values around the region became depressed.

The Treasury faces few boundaries on how it can proceed, and many of those can be waived at the department’s discretion.

The program is focused on mortgages and related securities — unless the Treasury deems it important to buy other kinds of assets, such as car or student loans. The Treasury plans to focus on mortgage-backed securities in the first round of purchases.

It is focused on buying from banks, insurance companies and other financial firms with substantial U.S. operations — unless the Treasury decides it’s important to buy from any foreign institution that holds mortgage assets.

The Treasury plans to hire private companies to manage what it buys, and the bill gives the department the power to waive the rules that govern the use of contractors.

“The Secretary of the Treasury still has huge latitude,” said Douglas Elmendorf, a senior fellow at the Brookings Institution. “Now we have to wait to see how he chooses to proceed.”

Treasury officials said the broad discretion is important to the success of the program and the health of the financial system. Including foreign firms, for example, is intended to encourage those institutions to continue lending to domestic banks, which often offer mortgage securities as collateral.

The bill also requires the Treasury to establish an insurance program in which private firms would pay premiums to the government for a guarantee of their assets. But the department can shape how this program would be implemented. The difference between the premiums that the firms pay and the value of the assets would count against the $700 billion cap on the total federal effort.

And Treasury has the authority to decide what restrictions should be imposed on companies that seek government help, including limits on executive compensation, and what kind of stake the government should take in companies, so that taxpayers benefit if the companies return to profitability.

In practice, that is likely to mean companies will pay different costs for participation. Representatives of financial companies say the details of the plan will determine whether and how much they participate.

Treasury officials said that flexibility was important to ensure that companies are willing to participate. There is concern that some companies might refrain, either as a demonstration of financial strength or to avoid restrictions.

When the Federal Reserve made loans available to investment banks earlier this year, for example, some companies stayed away, fearful that borrowing would be interpreted by investors as a sign of weakness.

Scott Talbott, a lobbyist for the Financial Services Roundtable, said he thought the program would attract wide participation, but that some of the strongest financial institutions might well refrain.

“If you’re in a position of strength, you don’t need the program,” he said. “And if you’re in a position of weakness, you’ll do it regardless of the restrictions.”

In structuring the program, the Treasury will rely on outside experts. The government already has tapped Edward Forst, Harvard University’s executive vice president, to work on the legislation and oversee the launch of the program. But Forst is planning to return within two months to Harvard, where he started as an executive vice president on Sept. 1.

Paulson said he will find longer-term help. “We’ll have an organization in place and hire a really strong person to run this,” he said. “We’re going to get someone who understands markets and we’ll find someone who’s a real professional to come to Treasury and run it.”

The bill also forces a re-evaluation of “mark to market” accounting rules, under which banks and other financial institutions must adjust the value of their assets to reflect current market prices, even if they intend to hold the assets for the long term. Bank executives have blamed these rules in part for their troubles, saying that distressed sellers have pushed market prices below actual values, forcing unreasonable write-downs.

The Securities and Exchange Commission already has the power to overrule the board that sets those accounting rules, the Financial Accounting Standards Board, but the bill restates that the SEC had authority to change mark-to-market rules. It also orders a study be conducted on the role mark-to-market rules played in the current crisis.

Lynn E. Turner, a former chief accountant at the SEC, criticized the provision, which he said was designed to help bend the commission to the banks’ will.

“What they’ve done here is say let’s study whether banks should be allowed to lie,” he said. “Regardless of whether you had mark-to-market accounting, you would have this problem, which is banks running out of cash. And they’re running out of cash because they made loans to people who aren’t paying them back.”

Valor justo e crise

setembro 25, 2008

Fair value concept prompts cries of foul
By Jennifer Hughes – 18/9/2008 – Financial Times
Surveys IAC1
01
Jennifer Hughes says thin markets make the rules more relevant – despite complaints from some banks

A year ago “fair value” was largely an accounting concept, hotly debated by those with an interest but considered quite academic by the wider business world. Yet since the credit crunch began and markets seized up, the concept’s merits and drawbacks have put accounting at the heart of heated arguments over valuations and writedowns.

A number of banks and insurers have publicly and privately lobbied regulators to relax the rules, complaining that the strict system has overstated their likely losses and has risked pushing the entire financial system into chaos by introducing a spiralling series of ever-decreasing values.

Among the notable critics, Henri de Castries, chief executive of Axa, the French insurer, labelled accounting the thermometer of business and questioned whether fair value was the right measurement system. AIG, a US rival, took up the baton – Martin Sullivan, former chief executive, warned of the potential for unintended consequences of using the the accounting method in what he called uncharted waters for the financial system.

Yet on the other side, Goldman Sachs, the investment bank with one of the best performances through the credit crunch, took aim at industry proposals to loosen the valuation rules by calling the plans “Alice in Wonderland” accounting.

How contentious can it be? Put simply, fair value is “marking to market”, or the practice of marking assets and liabilities at their current market value on the balance sheet. The concept is not new – banks, which run trading books, have been doing this for decades. Internally, they mark their books daily.

The aim is simple: to produce independently verifiable values, where possible without relying on management views for the numbers.

But many financial instruments have faced tough going in the thinly traded markets of the credit crunch. This has made the value of some exotic structured products virtually impossible to verify with any certainty.

The assets’ owners have been hardest hit by the fact that accounting rules require many of the losses and gains, including those on derivatives such as structured credit products, to flow through the income statement. This means the market falls of the past year have produced a direct hit to the bottom line – even though the securities have not been sold. Banks such as Merrill Lynch and UBS have written down their holdings by more than $40bn each and the total bill for writedowns in the industry is now more than $400bn.

This has produced a chorus of complaint from some of the biggest players in the business including AIG, which reported $11bn in writedowns in the first quarter of this year – and more since – but reckoned that, of that $11bn, only $900m would end up actually lost because it could hold the instruments until they matured. It argued, therefore, that it should not have to take a $11bn-sized hit for something that was likely to result in less than a tenth of that.

But those who apply the rules, from regulators to auditors, have held firm.

“Standard-setters and auditors shouldn’t be told they’ve got it wrong just because there’s a difficult market right now,” says Richard Bennison, UK head of audit at KPMG. “Are the rules perfect? Probably not, but they’re certainly a move in the right direction.”

Richard Sexton, head of assurance at PwC in the UK, says the writedowns, and their prominent position in the accounts, have forced the financial industry to deal with its problems far more quickly.

“Accounting doesn’t create reality, it reflects it. Here it has clarified where there are some issues and has illuminated them,” he says. “In the criticism, there is an element of ‘we don’t like the answer’.

“If you use market valuations, that by nature creates volatility because markets are volatile. But accounting is only reflecting that volatility.”

The extreme moves in markets have produced valuations so low that they have alarmed many. but Anthony Clifford, a partner at Ernst & Young in London, says: “For those that complain these values were not reasonable, they should note that the basis for many hedge fund collapses was margin calls based on these very same market prices.

“There is this argument that it is better for the world to delude ourselves by not marking to market. But a number of organisations have had to sell these assets and realise losses at these low prices.”

In July, for example, Merrill Lynch caused a stir when it sold collateralised debt obligations and realised $6.7bn, or just 22 cents in the dollar. The low prices could serve as a reference point for other banks’ valuations.

Now accountants’ focus is moving on to what the profession can learn from the last year and whether the standards can be improved.

The International Accounting Standards Board, for example, is undertaking a series of projects including consulting on whether it can simplify the rules on financial instruments. It has another expert group meeting to discuss issues around producing valuations in illiquid markets.

“There is a real debate as to whether we should calibrate prices from credit indices if there are no market prices. Some of these indices are very thinly traded and can be manipulated and they are only one indicator among many,” says Mr Clifford.

The scale of the shock to both corporate executives and investors does suggest that companies did not fully understood the implications of fair value for their accounts and that both investors and executives were unaware of some of risks lurking in many complex credit products.

Mr Sexton says it is a “reasonable question to ask whether people who are using the information have understood what it is telling them. It’s perfectly right that preparers and others should reflect on whether it could be presented more clearly.”

Mr Bennison believes part of the pain has come in educating investors and executives about the risks.

“Was there sufficient disclosure about some of the risks around market volatility? You could say there should have been more disclosure. It’s partly education and a misunderstanding of the size and exposure of some of the banks,” he says.

He defends the practice of fair value in this case: “You have to go back to the objective and purpose of accounts. It is not to determine what the future might hold and what future values might be. It is, at a point in time, to try and give a picture of the value at that point. It isn’t an indication of the market worth of that business and it isn’t to even out the good and bad times.”

And Mr Bennison stresses: “It is up to investors to make their own assessment of what they believe might happen in the future.”

Valor justo e crise

setembro 25, 2008

Wall St. Points to Disclosure As Issue; Accounting Rule Cited in Turmoil
Carrie Johnson
Washington Post Staff Writer
23 September 2008

The Washington Post

FINAL
D01

Wall Street executives and lobbyists say they know what helped push the nation’s largest financial institutions over the edge in recent months. The culprit, they say, is accounting.

The banks are making their case now in the hopes they can persuade securities regulators and lawmakers to temporarily suspend or roll back an accounting measure that took effect late last year as the credit crisis bloomed.

At issue is a provision that requires companies to disclose more information about the value of their assets, including how much they could fetch on the open market. The accounting standard, known as fair value or mark to market, has been cited as a contributing factor in the collapses of American International Group, Freddie Mac andLehman Brothers.

There’s only one problem, according to regulators and accounting analysts: The provision does not impose new duties on companies but merely exposes bum mortgage bets, making it a convenient scapegoat during market unrest.

“It’s easy to blame accounting because it doesn’t fight back,” said Jack Ciesielski, author of the Analyst’s Accounting Observer, a financial newsletter. “Now that there’s somebody out there putting some light on the financials, it’s shoot the messenger.”

Lynn E. Turner, a former SEC chief accountant, said he remembered fielding questions about the accounting provision six months ago from lawmakers on Capitol Hill.

“What the banks are telling everyone is that the accounting has caused the problem,” Turner said. “The only thing fair-value accounting did is force you to tell investors you made a bunch of very bad loans.”

The standard, which took hold last November, did not apply to any major new classes of investments. But it did require companies to provide investors with more information about how they estimate the value of assets, such as credit card receivables and mortgage loans. Each quarter, companies must affix a price tag to those securities and report it in their financial statements, even if they do not plan to unload them right away.

Under normal circumstances, finding a buyer for a particular asset or estimating its price on the open market is rarely a challenge. In an unusually tight credit environment, however, estimating the fair value of assets grew challenging — especially as trading partners backed away from risks associated with opaque investments such as tranches of mortgage-backed loans.

In many cases, the price tags dipped to artificially low levels, forcing banks and insurers to take large write-downs and raise capital to shore up their balance sheets, even when they did not intend to sell the assets anytime soon. Critics say the practice launched a desperate cycle from which some companies did not recover.

Supporters of fair-value accounting acknowledge that it can lead to low valuations but say it remains the best way to share information with investors.

“It’s intended to be more or less for orderly markets,” said Dennis R. Beresford, an accounting professor at the University of Georgia. “But we don’t have orderly markets these days. It’s not so much that mark to market has people complaining, but marking to a particular market. Today it’s more kind of fire-sale prices.”

AIG, the subject of an $85 billion federal intervention earlier this month, faced intense pressure to post more collateral with trading partners and lenders who raised questions about the value of investments the insurance giant held. The trading partners were also concerned about credit protection that AIG had sold to others in the form of complex instruments known as credit default swaps. Martin Sullivan, then chief executive, decried fair-value accounting in a February conference call with investors and called for regulators to make changes after AIG took an $11 billion write-down this year. Joe Norton, a spokesman for AIG, declined to comment yesterday.

As another example of recent accounting challenges, analysts cite Merrill Lynch‘s sale of $30.6 billion of collateralized debt obligations, or pools of mortgage-linked assets, to the investment company Lone Star Funds for only 22 cents on the dollar in July. Jessica Oppenheim, a spokeswoman for Merrill, which this month agreed to be purchased by Bank of America, declined to comment.

Advocates for leading financial institutions, including the Financial Services Roundtable and the American Bankers Association, have been raising the issue with government officials in Washington and New York for months. Arizona Sen. John McCain, the GOP presidential candidate, mentioned fair-value accounting as a problem in a recent stump speech.

Lobbyists have been seeking temporary relief from the accounting measure, which they say establishes bargain-basement prices for assets that would be valued far higher during more normal trading conditions. The events of last week raised fresh concerns among industry executives who fear that investments sold to the government as part of the $700 billion bailout plan will set a bargain-basement precedent for the rest of the market.

Banks also have been fighting their auditors, some of which have reasoned that downmarket conditions have persisted for so long that assets are no longer “temporarily impaired” but now require write-downs and capital infusions. Banking trade association officials are scheduled to meet with SEC regulators this week to discuss the issue, which could prompt some banks to attract new capital to meet regulatory requirements.

“The accounting rules and their implementation have made this crisis much, much worse than it needed to be,” said Ed Yingling, president of the bankers’ association. “Instead of measuring the flame, they’re pouring fuel on the fire.”

The odds of a wholesale regulatory reversal in the near term, however, are slim, according to two sources briefed on the process, because a shift away from fair-value accounting would only intensify trouble with pricing complex assets in an unruly market. The sources spoke on condition of anonymity because they were not authorized to speak publicly about the matter.

“It is extremely unlikely they are going to back off of market-value accounting in the midst of a crisis,” said a financial services policy expert with long government experience. “When things stabilize, I guarantee you that you’re going to see a revised procedure.”

J. Edward Ketz, an accounting professor at Pennsylvania State University, says he “doesn’t buy” the argument that fair-value accounting is a root cause of the problems. Executives never complained about mark-to-market accounting standards when they helped banks post huge gains on derivative investments during the economic boom, or when fair-value accounting for stock options produced tax benefits, Ketz said.

“If anything, I think that market-value accounting has helped to bring the problems to a head earlier and with less damage, than if market-value accounting hadn’t been applied,” said Charles W. Mulford, an accounting expert at the Georgia Institute of Technology.

Iasb e a Crise

setembro 25, 2008


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IASB calls credit crunch meeting

By Jennifer Hughes in London

24 September 2008

Financial Times

Asia Ed1

20

International accounting rulemakers are to hold an unscheduled board meeting next week to discuss certain topics made controversial by the credit crunch – including “fair value” and off-balance sheet accounting.

The meeting comes after the crisis on Wall Street has prompted fresh calls from banks and other financial institutions for regulators to ease their demands for “fair value” or mark-to-market, accounting where companies are required to mark their financial holdings at the current market value.

It is the first time that the International Accounting Standards Board has held an extraordinary meeting of this sort and reflects the current intense interest in accounting.

Both the IASB and its US counterpart FASB have come under severe pressure from banks over their accounting rules. Sir David Tweedie, head of the IASB, has been a particularly vocal advocate of fair value.

So far, the accounting bodies have been supported by leading market regulators, including the US Securities and Exchange Commission and the UK’s Financial Services Authority.

Many banks and insurers – including AIG, the US giant bailed out last week by the US government – have complained fiercely that the extreme market moves of the past year have caused them to write down billions in terms of “fair value”, leading in many cases to reported losses, even though they have no intention of selling the holdings and believe that prices will recover.

This week, the US Financial Services Roundtable, which speaks for large financial services groups, called on the SEC temporarily to exclude mortgage-related assets from fair value requirements. It also suggested that any prices paid by the planned government fund to buy these assets should not count as the reported market value since that would force other banks to mark down their holdings to those levels.

In Europe, opposition has been slightly more restrained. This week the British Bankers’ Association called for a “mixed measurement” model that would use fair values for some items but not for those held for the long term.

“It is important the IASB understands the banking industry’s concerns. Full fair value accounting by itself will not necessarily reduce complexity or bring clarity,” said Paul Chisnall, the BBA’s executive director for financial policy

The IASB is consulting on ways of simplifying accounting for financial instruments – a notoriously complex process. It is also shortly to produce a draft for changes to off-balance-sheet accounting that is likely to require greater disclosure of vehicles not directly reported on the balance sheet.

India e IFRS

setembro 25, 2008

Impact of IFRS convergence on tech companies
25 September 2008
09

Jamil Khatri

In line with the global trend, the Institute of Chartered Accountants of India (ICAI) has proposed convergence of Generally Accepted Accounting Standards (GAAP) in India with the International Financial Reporting Standards (IFRS) effective April 1, 2011.

Consistent with its previous record of being an early adopter of international best practices, the Indian technology sector has taken the lead with several companies being early adopters of IFRS, three years ahead of the mandatory time for the transition.

In part, this early adoption of IFRS was triggered by a change in the rules of the US Securities and Exchange Commission (SEC), whereby foreign companies listed in the US could replace US GAAP with IFRS.

Accordingly, US listed Indian companies such as Infosys, Satyam Computers and Sify have already filed financial statements prepared in accordance with IFRS with the SEC. There are several other companies which are evaluating this option actively.

Since companies such as Infosys have set the benchmark for industry reporting practices (for example, US GAAP adoption was fairly common in the Indian technology sector, in part, due to reporting practices adopted by Infosys and other large peers), IFRS may soon replace US GAAP as the benchmark within the Indian technology sector.

Similarly, while several European peer group technology companies now solely report using IFRS, several US companies are also likely to present IFRS financial statements as IFRS becomes more common in the US.

The transition to IFRS will improve comparability of reported business performance of Indian technology companies with technology companies globally and will result in greater transparency about company’s activities to various stakeholders, that is, investors, customers, etc. The transition will also provide impetus to cross-border acquisitions, enable partnerships and alliances with foreign entities and lower the integration costs.

Experience of technology companies that have transitioned to IFRS shows that sector executives need to analyse the impact IFRS adoption will have on all aspects of their operations, including: accounting policies and procedures; financial reporting and disclosures; information technology (IT) systems and the processes used to accumulate and report financial information, including new or revised IFRS-compliant data and calculations; modifications to business processes and controls supporting those processes, including internal controls to support related certifications of the chief executive officer and chief financial officer; contractual and legal obligations, such as financial covenants and employee incentive plans based in whole or in part on GAAP-reported metrics; training both finance and non-finance staff on changes to policies, procedures, and the new foundation for judgments; and managing communications with the executive team, audit committee, investors, and employees.

Although Indian GAAP is similar to IFRS in certain respects, many differences exist. These can be significant and have enterprise-wide implications. In addition to the several challenges along the path to transition that are applicable to all companies, due to the prevalent nature of certain transactions, technology companies in India face certain additional challenges in the area of revenue recognition, business combination , share-based payments and derivatives and hedging activities.

Revenue recognition

A very significant and common issue is the accounting for multiple element contracts. For example, a software company usually enters into a composite contract for sale of software licence, implementation and ongoing maintenance services. Further, in many cases they provide free upgrades and other free add-on software.

Although Indian GAAP is similar to IFRS in certain respects, many differences exist. These can be significant and have enterprise-wide implications.

Currently, there is lack of guidance under Indian GAAP to account for such multiple-element contracts and also for determination of objective and reliable evidence of fair values for each such element. In practice, several technology companies, account for each deliverable within the overall arrangement based on the prices stated in the contract with no separate evaluation of the fair value of each element. This may result in a deferral of revenue in several cases where upfront recognition is currently followed. Additionally, internal reporting systems and processes would need to evolve to ensure availability of sufficient benchmark data to support the fair value allocation.AcquisitionsMany technology companies have made acquisitions and are evaluating further inorganic growth. Transition to IFRS may impact accounting for such business combinations in various ways. Under IFRS, the date of acquisition/consolidation is based on the date when control is obtained and not merely based on the terms stated in the contract. This would generally defer the date from which revenues and operations of the acquired company are consolidated. Further, under IFRS, net assets taken over, intangible assets and contingent liabilities are recorded at fair value compared to carrying value under Indian GAAP. This may impact post acquisition profit due to higher amortisation and depreciation charge. Adoption of IFRS will require a change in the financial reporting process to factor in determination of fair value of acquired assets and liabilities, including several assets and liabilities where publicly quoted prices are not available.Stock option arrangementsMost of the technology company uses share options to attract and retain employees. Indian GAAP on share-based payment to employees (for example, employee stock options) provides entities with a choice to either adopt the intrinsic value method or the fair value method. Substantially all Indian companies have currently opted to adopt the intrinsic value method under which no compensation cost is recognised for at options that have an exercise price equal to the share price on the date of the grant. IFRS mandates the use of the fair value method, whereby the fair value of the options is determined using an option pricing model such as the Black-Scholes-Merton Model or the Lattice Model. This would usually result in recognition of compensation cost even if the options are at-the-money on the grant date. On adoption of IFRS, most Indian companies that have issued share-based payments may need to record previously unrecognised compensation cost relating to these awards, based on the fair value approach. Additionally, IFRS only permits accelerated method of amortisation for awards that vest in a graded manner whereas Indian GAAP permits straight-line method of amortisation for awards. Resultantly, this will have a significant impact on income statement of technology companies in the initial period of option grants.Similarly, Indian GAAP does not have any guidance on accounting for share-based payments to non-employees (for example, contractors and customers) and accordingly diversity exists among various companies. However, IFRS requires accounting based on fair value method for all share-based payments whether granted to employees or non-employees.Companies would need to re-evaluate their compensation strategies (including the cash: option mix) to determine the optimal use of share-based payment arrangements.Derivatives and hedging activitiesMost Indian technology companies have significant foreign exchange exposure due to foreign currency sales. Several of these companies enter into forward contracts and other derivatives to economically hedge these exposures. IFRS provides that all derivative financial instruments need to be recorded at fair value at each reporting with changes in fair value reported in the income statement, unless specific hedge accounting criteria are met. Thus, a company would be exposed to significant income statement volatility as changes in exchange rates start impacting current earnings even if they arise out of derivatives taken to hedge forecasted sales. If a company seeks to avoid this volatility through hedge accounting (that seeks to record the exchange rate changes only in the period when the forecasted sales occur), it needs to adhere to stringent hedge accounting documentation and monitoring requirements. Financial reporting processes would need to be changed to determine the fair value of derivatives and meet the complex hedge accounting documentation and other requirements. Lastly, several companies may realise that the derivative instruments that have historically used (for example, leveraged options) to economically hedge their exposure, do not even meet the basic requirements for hedge accounting. This may result in a change in business practices and the nature of contracted derivative instruments.In conclusion, in addition to the inevitable mandatory adoption, the benchmarks within the Indian technology sector are likely to move from US GAAP to IFRS due to the early adoption by leading companies. This would not only result in several areas of financial reporting differences and financial impact, but would require changes to financial reporting processes and systems.

(The author is Head of US GAAP and IFRS Services, KPMG. blfeedback@thehindu.co.in)

Trabalho dobrado

setembro 25, 2008
CARTAS – Trabalho dobrado com a nova Lei das S/A
Editoriais
23 September 2008
Gazeta Mercantil
23 de Setembro de 2008 – A história da regulamentação das normas contábeis no Brasil não é extensa. Embora as primeiras regras tenham sido criadas em 1940, as alterações e atualizações mais profundas foram poucas. Apenas duas podem ser consideradas as mais importantes. A de 1976 representou uma verdadeira revolução. Já a mais atual, de dezembro de 2007, ainda suscita muitas dúvidas e se refere às demonstrações contábeis que introduziram novos conceitos na legislação societária brasileira.

Certamente este é o primeiro passo para a convergência com as normas internacionais, fato que já ocorre na União Européia (UE), em conjunto com muitos outros países que adotam as normas do International Accounting Standards Board (IASB). Esta é a boa notícia da Lei 11.638/07, conhecida como Nova Lei das S/A. A outra não é tão boa assim, já que vai exigir muito trabalho e profissionalização de contadores, auditores e afins. E o trabalho já começa dobrado. Devido à segregação entre lei tributária e normas contábeis, estes profissionais terão que confeccionar dois balanços a partir de agora.

Em julho de 2007, a Comissão de Valores Mobiliários (CVM), por meio da Instrução 457, já havia determinado que as companhias brasileiras de capital aberto passassem a elaborar as demonstrações contábeis consolidadas com base nos International Financial Reporting Standards (IFRS) a partir do exercício de 2010.

Para ratificar e facilitar o cumprimento desta regra, a Lei permite a segregação entre a lei fiscal ou especial e normas contábeis. Isto poderá ser feito no próprio livro diário, ou seja, a empresa efetua os registros conforme os critérios fiscais, levanta o balanço e resultado fiscal para efeito de tributação dos impostos, que servirá especificamente para o governo. Após este balanço efetuam-se os ajustes contábeis para levantamento das demonstrações contábeis societárias, inclusive com os ajustes para harmonização com as normas do IFRS, que não poderá ser base de incidência de impostos e contribuições nem ter quaisquer efeitos tributários.

Em resumo, a partir de agora serão feitos dois balanços, um para efeito fiscal e outro para fins societários em conformidade com as normas internacionais. Para isto será necessário efetuar todos os registros, durante o exercício, no diário e razão ou em livros auxiliares – com base em critérios aceitos pela legislação fiscal – e levantar o balanço fiscal. Em seguida, devem-se efetuar os devidos ajustes para a obtenção das demonstrações contábeis societárias. As disposições de natureza puramente contábil introduzidas pela nova legislação foram feitas visando apenas à internacionalização das normas e não para se obter efeitos fiscais. Mas não se trata de contabilidade informal, será realmente preciso fazer duas contabilidades – uma de efeito meramente fiscal, que não se mistura com o balanço societário. A parte mais difícil, acredito, não será o trabalho dobrado, mas sim mudar a cultura das empresas e dos profissionais da área contábil.

Outro aspecto importante da Lei 11.638/07 é que ela se estende às sociedades de grande porte, ainda que não constituídas sob a forma de sociedades por ações. Assim, aplicam-se à elas as disposições da Lei 6.404 sobre escrituração e elaboração de demonstrações financeiras e a obrigatoriedade de auditoria independente por auditor registrado na CVM, sendo elas as com ativo maior que R$ 240 milhões ou receita bruta anual superior a R$ 300 milhões. Mais trabalho, as companhias que antes não se preocupavam com a elaboração de balanços e auditoria, por não ter capital aberto, terão que fazê-lo a partir de agora.

Passada a tempestade inicial causada por qualquer mudança, caminhamos rumo à transparência e à credibilidade, o que abre portas para companhias brasileiras no cenário mundial. Contadores e auditores que se preparem, pois cabe a eles a importante missão de consolidar no País as rígidas normas internacionais.

José Santiago da Luz, auditor e sócio-diretor da RCS Brasil, São Paulo

(Gazeta Mercantil/Caderno A – Pág. 2)(José Santiago da Luz, auditor e sócio- diretor da RCS Brasil, São Paulo)

Corrupção

setembro 25, 2008
Alemanha: Ex-administrador da Siemens admite em tribunal ter subornado sindicato paralelo
24 September 2008
Agência Lusa – Serviço Internacional
Berlim, 24 Set (Lusa) – O ex-administrador da Siemens, Johannes Feldmeyer admitiu hoje em tribunal ter subornado a Comunidade Independente de Funcionários da Empresa (AUB), um sindicato paralelo criado para para diminuir a influência do Sindicato dos Metalúrgicos (IG Metall).

Os apoios à AUB elevaram-se a meio milhão de euros por trimestre, revelou Feldmeyer, adiantando que este acordo foi firmado oralmente com o chefe da referida organização, Wilhelm Schelsky, que recebia também pessoalmente os apoios financeiros da Siemens.

Ao todo, foram pagos pelo consórcio ao referido sindicato cerca de 30 milhões de euros, entre 2000 e 2006, dinheiro que serviu, nomeadamente, para financiar campanhas para eleição de membros da AUB para a comissão de trabalhadores.

As facturas das despesas feitas pelo AUB eram enviadas para a morada particular de Feldmeyer, para não despertar suspeitas junto dos funcionários do correio interno ou da contabilidade da Siemens.

“Era bom haver uma AUB forte, para termos uma força alternativa ao IG Metall e por isso apoiávamos a AUB”, esclareceu hoje Feldmeyer na sala de audiências do julgamento a decorrer em Nuremberga, em que está a ser acusado de corrupção activa e tráfico de influências.

O antigo executivo alegou que se militou a cumprir ordens superiores, e garantiu que os responsáveis máximos da Siemens, nomeadamente o ex-presidente executivo Heinrich von Pierer, estavam a par de toda a situação.

O AUB retribuiu as “luvas” assinando com a Siemens, por exemplo, em nome dos seus filiados, um acordo sobre a flexibilização dos horários de trabalho, que poupou milhões de euros ao gigante alemão do ramo electrónico.

O sindicato paralelo, que operava não apenas na Siemens, mas em todas as empresas do ramo metalúrgico e electrónico, chegou a ter 10 mil filiados, a maioria dos quais membros das comissões de trabalhadores das respectivas empresas.

O ex-chefe da AUB, Wilhelm Schelsky, foi detido em Fevereiro de 2007, está desde então em prisão preventiva e terá de responder em breve em tribunal por burla, cumplicidade em abuso de confiança e delitos fiscais.

Schelsky era na altura conselheiro da Infineon, filial da Siemens especializada no fabrico de semi-condutores, com um salário anual de dois milhões de euros fixado em 2001 por Feldmeyer, pouco depois do acordo entre a Siemens e a AUB.

Feldmeyer também esteve provisoriamente detido em princípios de 2007, mas foi libertado depois de terem sido recolhidos os indícios que havia contra ele, e de ter admitido parcialmente a sua culpa.

Superávit Ambiental

setembro 25, 2008
Brasil terá ‘superávit ambiental’ em 2050
ECONOMIA & NEGÓCIOS – SUSTENTABILIDADE
Andrea Vialli
24 September 2008
O Estado de São Paulo
País pode aliar crescimento e conservação, diz estudo

O Brasil e a Rússia devem ser os únicos grandes países do mundo a atingir 2050 com um balanço positivo entre crescimento da economia e conservação dos recursos naturais. No caso brasileiro, a matriz energética mais limpa e as florestas dão ao País mais preparo para enfrentar as mudanças climáticas e mais oportunidades de negócios nesse campo. É o que mostra estudo da Universidade de São Paulo (USP), que calculou o balanço dos países em relação às mudanças climáticas.

Com base na metodologia contábil empresarial, a pesquisa avaliou o estoque de recursos naturais e o saldo entre as emissões e capturas de gases causadores de efeito estufa em sete países – Brasil, Rússia, Índia, China, Estados Unidos, Alemanha e Japão – até 2050.

“No cenário previsto para 2050, o Brasil terá um superávit de US$ 544 bilhões, patrimônio suficiente para continuar crescendo e ainda contribuir positivamente para a Terra com cotas excedentes de carbono, provenientes de energia limpa e recursos florestais” diz José Roberto Kassai, professor de contabilidade da faculdade de Economia e Administração (FEA/USP) e um dos responsáveis pelo estudo, que envolveu seis pesquisadores da USP.

O mundo, segundo o estudo, terá um déficit econômico-ambiental estimado em US$ 15,3 trilhões, ou 23,7% do PIB mundial. “Só Brasil e Rússia terão condições de continuar crescendo sem maiores pressões sobre o meio ambiente”, avalia. O estudo completo será divulgado em outubro, na Câmara Americana do Comércio (Amcham).

Para Kassai, o balanço positivo para o País pode se traduzir em oportunidades de negócios. “Se o Brasil souber aproveitar esse trunfo, poderá receber volumosos investimentos estrangeiros, tanto para projetos de geração de créditos de carbono quanto em compensações financeiras para manter as florestas intactas.”

LUCROS

Muitas empresas já estão lucrando no mercado de créditos de carbono, que vem ganhando impulso desde 2005. A fabricante de papel Klabin concluiu, em abril, a venda do seu segundo lote de créditos de carbono. A empresa substitui o óleo combustível por gás natural nas caldeiras da fábrica em Piracicaba (SP). A venda dos créditos trouxe receita adicional de 1,5 milhão.

“O gás natural é 26% menos poluente que o óleo” , diz Júlio Nogueira, gerente-corporativo de meio ambiente da Klabin. Segundo ele, novos projetos estão em curso. Na nova fábrica de papel da empresa, inaugurada na semana passada, no Paraná, uma das caldeiras será alimentada só com restos de madeira da própria fábrica e do pólo madeireiro da região. “Esse projeto tem um potencial de gerar créditos equivalentes a até 100 mil toneladas de CO2 por ano.”

A petroquímica Solvay Indupa, em Santo André, faturou US$ 1,4 milhão com uma venda de créditos na semana passada, também proveniente da troca de óleo combustível por gás natural. “Geramos receita extra com uma vantagem ambiental enorme, já que o gás não emite gases de enxofre”, diz Carlos Nardocci, assessor da direção industrial.

O ESTUDO DA USP

Amostra: Sete países que representam 68% do PIB e 50% da população do mundo

Metodologia: Usando a equação básica da contabilidade empresarial (ativo – passivo = patrimônio líquido), os pesquisadores calcularam o patrimônio líquido ambiental de cada país. Ou seja, qual o custo do crescimento econômico em relação à preservação e manutenção dos recursos naturais

Resultados: Somente Brasil e Rússia terão patrimônio líquido ambiental com superávit em 2050. O Brasil terá um superávit de US$ 544 bilhões e a Rússia, de US$ 156 bilhões. Países como os EUA e China serão os maiores deficitários ambientais, com US$ 2,72 trilhões e US$ 3,26 trilhões, respectivamente. O mundo como um todo terá um ‘déficit’ ambiental de US$ 15,3 trilhões

Cofins

setembro 25, 2008
Escritórios devem pagar Cofins
Legislação & Tributos
18 September 2008
Valor Econômico
Os contribuintes saíram totalmente derrotados no desfecho da disputa sobre a cobrança da Cofins das sociedades de profissionais liberais, finalizada ontem no Supremo Tribunal Federal (STF). Além de perder no mérito por um placar de oito votos a dois, os advogados não conseguiram garantir a chamada “modulação” dos efeitos da decisão, segundo a qual a cobrança do tributo passaria a ocorrer apenas a partir da decisão do Supremo. A não-retroatividade da decisão protegeria todos aqueles – entre escritórios de advocacia e de contabilidade e consultórios médicos e odontológicos, entre outros – que haviam deixado de recolher o tributo anteriormente. O Supremo ainda aplicou a lei da repercussão geral ao caso, o que induz os tribunais locais a julgarem as ações sobre o tema imediatamente, levando em conta a nova posição da corte.

O resultado de ontem dá fim a uma das maiores disputas da Fazenda Nacional em andamento no Poder Judiciário, envolvendo 23 mil processos e um passivo de R$ 4,6 bilhões, segundo estimativa do Instituto Brasileiro de Planejamento Tributário (IBPT). O caso começou em 1996, mas desde o início de 2003 a tese foi considerada vitoriosa por advogados e alimentou uma corrida ao Judiciário. O revés no Supremo atingirá sociedades de profissionais liberais que deixaram de recolher a Cofins com base em decisões judiciais. Sem as decisões, elas ficarão vulneráveis a autuações da Receita Federal pelos anos de tributo não-recolhidos e podem ser alvo de execuções fiscais. O caso voltou ao pleno do Supremo ontem em um voto-vista do ministro Marco Aurélio, que havia suspendido o julgamento em março de 2007 com o placar já definido: na ocasião, contavam-se oito votos em favor do fisco e um pelos contribuintes. Marco Aurélio votou pelos contribuintes e colocou em pauta a questão da modulação. Segundo a posição dos advogados, havia jurisprudência consolidada sobre a disputa em favor dos contribuintes, e a alteração de posição no Supremo levaria grandes prejuízos aos contribuintes. O ministro Gilmar Mendes deu início ao julgamento da modulação afastando sua aplicação. Para ele, a matéria já tinha jurisprudência na casa desde 1993, no julgamento da Ação Declaratória de Constitucionalidade (ADC) nº 1. A crítica mais enfática à modulação no caso foi feita pelo ministro Cezar Peluso: “Não podemos baratear o instrumento ou o transformamos em regra; logo teremos que modular sempre que houver reversão de entendimento dos tribunais inferiores”, afirmou. E ainda viu uma função didática na posição: “Do contrário seria uma moratória fiscal. Com nossa decisão sinalizamos ao contribuinte que não bastam algumas decisões para deixar de pagar seus impostos, e que devem levar a sério suas obrigações tributárias.” O placar chegou a contabilizar sete votos contra a modulação, até que o ministro Celso de Mello defendeu o instrumento, lembrando que durante anos o Supremo não admitia recursos sobre o tema, considerado infraconstitucional. Ricardo Lewandowski e Carlos Britto voltaram atrás e levaram a um empate de cinco votos a cinco – havia dez ministros presentes, com a ausência de Ellen Gracie. O presidente Gilmar Mendes entendeu que a modulação só poderia ser aprovada por uma maioria de oito votos e garantiu a vitória ao fisco.