Please outline the role of accounting standards setting bodies.

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pohnpei397 eNotes educator| Certified Educator

The role of these bodies is, of course, to set standards for the accounting industry.  These standards are usually pretty obscure, but have come to some prominence since the financial meltdown last year.  Accounting standards are rules about how firms must account for and report details of their finances and transactions so as to honestly represent their financial status.

An example of this is the standard regarding how to state the value of loans (this is what was/is controversial since the collapse). Currently, firms must employ "mark to market", aka "fair value" accounting.  This means that if your bank has loaned money out, it must state the value of that loan based on how much you could sell the loan for today. (If you loaned $1 billion and the loan went bad, you'd have to report a value on that loan of say $1 million instead of the $1 billion you expected.)

During the collapse, loan values plummeted and firms had to report the lower values and made that made them look very bad -- as if they were in a bad financial state.  Banks have been asking that this standard be suspended or revoked.  So far, the standards setting boards have not allowed this.