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Accounting's new era - Beancounter there, done that

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The world’s two big accounting bodies search for new leaders. Robert Herz has had a more interesting career than any accountant deserves. He began his tenure as chairman of America’s Financial Accounting Standards Board (FASB) in 2002, dealing almost immediately with the fallout from the Enron and WorldCom scandals, which had been abetted by accountants. He was due to end it on October 1st, a sudden departure for undefined personal reasons, after a crisis also partly pinned on the profession.

Mr Herz leaves behind a project of convergence with the international standards used by most countries outside America and set down by the International Accounting Standards Board (IASB). That body’s head, Sir David Tweedie, is also set to leave office, in June 2011. Despite the departures of Sir David and Mr Herz, big accounting firms and their clients still expect convergence of standards to top the agenda of their successors (a mid-2011 deadline will slip).

The most controversial issue in that process is how to report financial assets: whether at fair-market value or amortised cost. Mr Herz firmly backed fair value, arguing that doing otherwise made financial trickery easier. Opponents think that revaluing seldom-traded assets during market meltdowns makes banking crises more likely and more severe. Some of those opponents were members of Congress who hauled Mr Herz in to testify last year, leading to a partial climbdown on fair value. But in its most recent proposals fasb dug in its heels, calling for most of them to be given at fair value. IASB has taken a two-category approach, saying that loans and loan-like equivalents held to maturity may be marked at amortised cost, whereas frequently traded instruments should be marked to market.

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