More continuing oversight is needed
April 22, 2008 10:49 AM ET msn money
With the cleanup of $11 billion in accounting errors barely out of their rear-view mirror, Fannie Mae and Freddie Mac are getting a new warning about how they keep their books.
The regulator for Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE), the Office of Federal Housing Enterprise Oversight, told the government-chartered buyers of mortgage debt Monday that they must be judicious in using fair-value accounting rules or they will be barred from them.
At issue is accounting standard No. 159, known as the Fair Value Option for Financial Assets and Financial Liabilities. The standard allows a firm to shift its accounting of an asset from "book value" to "fair market value." The practice can, in certain situations, produce gains when the value of a security declines
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