Summary
The referred article speaks of the efforts of the SEC to monitor and police credit rating agencies. This is ofcourse a welcome proposal. However, it will also have an effect on accounting and the measurement of true value and fair value of securities. In this analysis I take a look at these aspects and how we can expect the rating business to change and also the manner in which values as associated with securities are measured.
Analysis
1. Poor credit rating of securities has been a source of friction across regulators and market participants.
2. There has also been felt to be a conflict of interest on the part of the rating agencies.
3. Rating shopping by companies has also been a cause for concern.
4. The effects of the monitoring of rating agencies will also impact the accounting profession. This is because the rating is done based on an analysis of reported financial results combined with true value and fair value.
5. In the accounting profession the term we hear the most in the realm of valuation is fair value but in my opinion we will soon start hearing of true value. What this will mean is ofcourse anybody's guess.
6. The regulation of credit rating agencies is going to have a major impact on credit markets, securities regulations and accounting rules. So let us wait and watch how the events turn.
