By: Matthew Arndt, CFA, CPA, CFP | August 5, 2009 | Investor Information, The Politicians, The Regulators, Wall Street Ethics

In a very dangerous development for investors, the Financial Accounting Standards Board (FASB) is at risk of losing its independence as an autonomous accounting rulemaker for U.S. Companies. Currently, FASB answers only to the Securities and Exchange Commission, but members of Congress, banking regulators and banking trade groups are increasingly seeking influence over the entity due to a proposal by the standards board which would require banks to report the value of all loans and other assets at the price investors are willing to pay; in other words, at “fair value.”

It’s amazing how a bank can go from a failing entity to a profitable powerhouse due to a few cosmetic changes of its balance sheet, but that is exactly what happened earlier this year when Congress repealed “Fair Value Accounting” allowing failing banks to claim billions of dollars in “phantom profits” simply by tweaking their bookkeeping; making banks appear healthier than they actually are and allowing banking executives to award themselves outsized, undeserved bonuses most of which came at U.S. taxpayers’ expense.

The reinstatement  of Fair Value accounting would likely make it very difficult for banks to conceal problems from investors. If FASB loses its independence and becomes just another extension of Congress that can be easily influenced by corporate greed, you can be almost certain that as an investor you will not receive fair and objective financial reporting from public companies that hold sway with politicians.