On Wednesday, acting Chief Accountant Jim Kroeker testified before the House Committee on Financial Services with regard to the progress being made by the FASB on "fixing" mark-to-market accounting. Some of the points he made are troubling in that they illustrate just how far - and how fast - the political interference in independent standard setting has gone. For example:

"... the FASB has acted diligently and responsively to use their expertise as an independent standard-setter and expose amendments to the measurement of securities in inactive markets and the recognition of "other-than-temporary" security impairments. Following the FASB due process procedures, the proposed amendments were deliberated fully at an open public meeting of the full Board, were approved by a majority vote, and are now subject to public comment."

They've acted responsively, for sure. But as an independent standard-setter? Hardly. Kroeker emphasized the following of due process in this escapade, but it can only be termed perfunctory at best. They'll have one day to consider the comment letters they receive. How many other proposals have they floated with that kind of deliberation? I can't think of any. Would "an independent standard-setter" conduct its affairs in such a fashion, in the face of a Congressional inquisition? I don't think so.

This affair is beginning to look like the IASB's cave-in last fall. In fact, there's practically a template being hammered out: in the last month of a quarter so bad it demands accounting cosmetics, financial institutions get politicians to bully the standard setters into making a running change in the standards in time for the reporting season. The big difference between the IASB and the FASB in these two episodes is that at least the FASB went through the motions of a due process - just like they did with the January OTTI amendment.

Kroeker emphasized the need to have the amendments in place for the first quarter reporting season - and noted the OCA is seeking support wherever they can find it:

"This has been and remains my number one priority. We have been proactively reaching out to investor groups, the accounting profession, fellow regulators, and representatives from those industries that would be most affected by the FASB's proposed amendments. And of course we are, as we always are, in constant contact with the FASB, and we understand that they have likewise engaged in active dialogue with capital market participants."

They wouldn't have to "reach out" so hard to find support if an adequate comment period was in place. These are big honking changes to the accounting standards, moreso than in the usual FSPs, and it seems unseemly to have to go out garner support just to be able to have the Board vote on them the dayafter the comment period ends.

One particularly disturbing claim by Mr. Kroeker:

"The FASB proposal would seek to provide additional information to the investor by reporting the minor loss of expected cash flow in earnings with other changes in value recognized in equity (i.e., OCI) until a decision to sell the security, and realize the loss, was made. That is, such a model would appear to help bridge the gap between the current fair value and the value expected from holding investment positions until markets return to normal liquidity levels."

I wonder which investors to whom they "reached out" thought that additional information was provided by putting losses in other comprehensive income - where it's practically buried at earnings release time - instead of in earnings, where it's visible? "Bridge the gap between current fair value and value expected from holding investment positions?"Let's see what people would think of professional investors if they applied that kind of reporting to their own portfolio performances.