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Accounting News Roundup: Volcker Says Convergence Is Looking Like a ‘Collision’; Internal Audit Battles Relevancy Question; AIG to Remain Ward of the State | 06.10.10

Volcker upbeat on “reasonable” reform bill [Reuters]
Former Fed Chair Paul Volcker took note of the FASB and IASB’s divergence on fair value and he’s not too thrilled about it, “[Volcker]…said that U.S. and international accounting standard setters must reach an agreement on how banks value the loans on their books.”

So from Big Paul’s POV, there is no option other than to get your shit together on this even though the two boards seem to be moving in the exact opposite direction. Oh, and could you do that ASAP? Reuters quoted him “What appeared to be two organizations converging … now looks like a collision. I hope they can come together by the end of the year.”

Is Internal Audit Irrelevant? [Norman Marks on Governance, Risk Management and Internal Audit]
The question about the relevancy of the Big 4’s audit business (at least for public companies) has been questioned but now the role of internal auditors is in question. Norman Marks cites a recent presentation at the IIA’s International Conference in Atlanta:

One of his points was that internal auditors have been humiliated – because nobody has held them to blame to any degree for the collapse of the banking sector, the failures in corporate governance and risk management, and the tremendous loss in value of investors’ shareholdings all over the world.

Richard pointed out that the Walker report (in the UK) on the causes of the banking crisis didn’t even mention internal audit. We are irrelevant.

Mr Marks takes exception with this, saying that internal auditors do deserve some blame and that if the NYSE and others get around to issuing some requirements around the function of internal audit, the recognition will come with it.

U.S. Faces ‘Severe’ AIG Losses, Says Panel [WSJ]
Even though the bailout of AIG probably prevented us from bartering over food in a barren wasteland with cars on fire everywhere, taxpayers ‘remain at risk for severe losses.’ A Congressional Oversight Panel also stated that the U.S. Government will continue to be a “significant shareholder through 2012.” The Beard is more optimistic however, saying “AIG, I believe, will repay.”

Bernanke: Bailouts ‘Imposed No Cost on the Taxpayer’

Ben Bernanke claims there is “no net impact” to U.S. taxpayers involved in bailing out the TBTF banks, state unemployment funds, car companies, insurance companies, GSEs; need I continue? You know the list by now.

The impact in question comes from the size of the Fed’s swollen balance sheet, surely you are familiar with the number by now. I don’t have to remind you little beancounters that the Fed writes its own accounting manual, so take that “balance sheet” for what it is worth.

“These programs, which imposed no cost on the taxpayer, were a critical part of the government’s efforts to stabilize the financial system and restart the flow of credit,” said Bernanke in prepared remarks to the House Financial Services Committee. Not even a snow day could keep him from this one.

Have you ever seen a “company” drastically reduce the size of its balance sheet? Me neither. Next.

The indirect “net impact” of all of this, of course, is a drag on unemployment. While on a federal level, inflation will have to run hot enough to cover a growing deficit, bankrupt municipalities and states are bleeding businesses and residents dry. So who will be financing the Fed’s unloading of assets? It is unlikely to be the extinct “middle class”.

As many of you already know, CPA Trendlines tracks accounting unemployment numbers regularly. I know some of you are prone to stick to what we did last year but last year didn’t work and we’re about due for some sort of revolt. The BLS revisions represent a significant material deficiency in what we’re being told versus what is actually happening; you kids wouldn’t eat up the layoff posts if it didn’t exist.

So there is Bernanke’s net impact. Need I continue?

Unemployment taxes are up for those who can still afford a workforce. Encouraging.

Though not measurable in the same way as tax increases and wild inflation, the regulatory impact is also one worth recognizing. How many bad rules will result? I don’t do the math part, sorry. Let’s just sit around and let the rest of the world dictate how we can rebuild the integrity of our financial statements (?)

I’m not sure what “net impact” meant in economics class to our esteemed Fed Chairman but where I come from, bailout measures do appear to have a net impact on taxpayers, whether or not it’s actually called tax. I’m sure some tax accountants can agree with me on that?