| WASHINGTON, March 27
WASHINGTON, March 27 The U.S. accounting
standard-setting board could this year revamp the accounting
treatment that MF Global used to mask risky European
sovereign debt exposure, an official at the board will tell
lawmakers on Wednesday.
"Moving forward with this project will involve a series of
public education and decision-making meetings and the exposure
of a proposed standard for public comment," said Financial
Accounting Standards Board Technical Director Susan Cosper in
"Subject to the board's deliberations, we currently
anticipate that any resulting amendments from this project could
be issued in 2012."
Cosper is due to appear on Wednesday before a House
Financial Services panel that is investigating the collapse of
brokerage firm MF Global and the ongoing search for roughly $1
billion in missing customer funds.
The firm filed for bankruptcy on Oct. 31 last year after
investors and customers became rattled over the firm's $6.3
billion bet on European sovereign debt.
Securities and Exchange Commission Chairman Mary Schapiro
has previously said her agency is probing MF Global's accounting
treatments and disclosures.
FIRST SIGNS OF TROUBLE
In the months leading up to MF Global's collapse, the first
regulator to flag problems was the Financial Industry Regulatory
Authority, th e self-regulatory organization that po lices
In June 2011 , FINRA raised concerns that the firm had a
substantial position in European sovereign debt and was not
appropriately holding capital against it.
FINRA also questioned whether it was appropriate for MF
Global to use Generally Accepted Accounting Principles to park
the exposure off balance sheet.
MF Global was financing its European sovereign debt bets
through "repo-to-maturity" transactions, which allowed it to
move the exposure off its balance sheet, even though the firm
still faced enormous risk in the case of a default.
FINRA and the SEC ultimately forced MF Global to increase its
capital. The firm later disclosed the capital infusion in
Since then, lawmakers and regulators have raised questions
about whether the accounting treatment used by MF Global for its
repo-to-maturity transactions is appropriate, or whether it may
have hindered regulators from catching problems sooner.
"That is a loophole so big you could drive a Mack Truck
through it," Democratic Senator Kent Conrad told Schapiro during
a hearing in December. "If that's not closed down, we really got
to ask ourselves what we're doing."
Cosper said that the FASB met with the SEC's Office of the
Chief Accountant in January to evaluate the concerns surrounding
repo-to-maturity accounting. Input from interested parties so
far has also "confirmed that users of financial statements
broadly believe that disclosures for repurchase agreements
should be improved," she said.
The FASB held a public meeting on the issue earlier this
month to get the process moving.
Cosper noted that while historically most repo-to-maturity
transactions have involved U.S. Treasury securities, the range
of instruments involved has broadened over the years to include
other debt instruments such as those seen in the MF Global case.
Those instruments, she said, "may be less creditworthy and
consequently affect how these transactions operate and how
investors consider the risks associated with them."