As of July 1, 2006, derivatives accounting and risk management expert Thomas Linsmeier joined the Financial Accounting and Standards Board (FASB), replacing outgoing member Katherine Schipper. Linsmeier chairs the accounting department at Eli Broad College of Business (Michigan State); he’s also served as an academic fellow at the SEC. Linsmeier recently discussed FASB’s conceptual framework with editors at CFO.com, including pension and lease accounting, the mismatch problem with derivatives accounting—and of course, the continuing debate on fair value accounting. On how to end the debate, Linsmeier answered:
When you talk about historical cost and fair value, those two numbers are identical at an exchange transaction date. Then the issue becomes whether or not you want to re-measure the transaction price at a fair value in the future in the [accounting] model, or take the old transaction price and allocate it over time to the income statement. The real open question when you make that trade-off is, how might investors best be served? Further, which provides more relevant information to investors to help them predict the future economic prospects of a company: When you re-measure to fair value or when you allocate that original cost over time? It is a trade-off between relevance and reliability.
For more of the Q n A, go to: www.cfo.com/printable/article.cfm/7105169?f=options
Please let us know
if you have any comments about this article or enhancements you would like to see.