(This concludes my look at what the FASB has done. CLICK HERE if you missed the opening)…

The FASB is also going to allow companies to list impaired assets like mortgage securities in their books as “other comprehensive income.” This improves operating income by allowing companies to report smaller loss amounts on their financials. So long as the company discloses quarterly their justification for listing assets in this category, it will be considered appropriate.

Columbia Business School Accounting Professor Robert Willens sees this new provision upping companies’ earning statements by 20 percent on average. Yet large banks like Citigroup Inc. would sop up much of this revaluation profits because they are carrying much many more toxic assets than smaller banks.

And bankers want even more

Bankers are also lobbying for the FASB and the SEC to receive retroactive compensation for their impaired illiquid assets. House Financial Services Committee Chairman Barney Frank told the American Bankers Association he will present their proposal to the SEC and Congress. However, Willens finds the idea very unusual.

“FASB doesn’t traditionally do that, but Frank’s pressure could make it happen,” he said.

What does this mean to taxpayers?

The prognosis isn’t good. Looking at the responses to the article, “JoeHunt” provides a good yardstick:

Honestly, how can anyone believe this rubbish? Show me a strong, dependable cash flow and I’ll show you a market and investors willing to pay market value for the discounted cash flow. In this market especially, I’d dump my entire portfolio into something with a dependable cash flow. WAKE UP folks, the problem is these future cash flows are “pie in the sky” or the actual dependable cash flow is way under book value, so the assets do not exist at these prices and that’s why there’s an illiquid market, the lapse of mark to market is an utter robbery.

Sounds to me like more short-term tricks to create illusory short-term gains. I agree with JoeHunt. If there is cash flow, why is the asset toxic? Can somebody out there explain this in layman’s terms, or is this I lie like I think it is?

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Banks saddled with toxic assets have cried to the government for relief. They’ve received a cash advance of taxpayer money, and now they’ve been given yet another gift.

Ronald Orol reports for MarketWatch that the Financial Accounting Standards Board (FASB) voted unanimously to “give auditors more flexibility in valuing toxic mortgage assets that may have long-term value.” This is expected to boost bank operating profits for Q1 2009. It also alters mark-to-market rules, where banks and corporations assign a value to assets like mortgages, securities, credit-card debt and student-loan investments. The values assigned are based on the current market price for that asset.

Banks are chomping at the bit for this

The FASB’s decision comes none too soon in the mind of bankers, who have complained that they have assets that can’t be sold because there is no active market for them. Banks and their auditors will now be allowed to use “significant judgment” when valuing toxic asset. What does this mean? If companies have assets with strong cash flows that can be estimated, then those cash flows would be the basis for estimating appropriate value in the corresponding toxic (illiquid) market.

FASB Chairman Robert Herz has said that “auditors will need to make a greater effort to judge whether something is distressed or not. The majority supported what we were doing. There no longer will be the presumption that these assets are being sold in a distressed sale.”

CLICK HERE to see what else the banks are asking for…

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