Trump case sparks request for FASB accounting rule revamp

Dive Brief:

Daniel Tinkelman, a professor of accounting at Brooklyn College of the City University of New York, is asking the Financial Accounting Standards Board to revamp accounting rules covering how personal financial statements are treated under generally accepted accounting principles, according to an Aug. 15 letter to the FASB.
The letter cites the “ambiguities and disagreements” over the interpretation of the existing rules that were showcased at former President Donald Trump’s civil fraud trial as the impetus for the request.
“Ex-President Trump testified during his trial that, due to how flexible GAAP was, he considered his personal financial statements ‘worthless,’” with expert witnesses saying GAAP allowed values to differ by orders of magnitude, Tinkelman wrote. “I respectfully suggest that the FASB consider whether the accounting in this area needs to be revised and clarified.”

Dive Insight:

Tinkelman’s request follows roughly six months after New York Judge Arthur Engoron — after a lengthy bench trial — found the Trump Organization, Trump and other named defendants used fraudulent financial statements which inflated assets’ worth in order to borrow more at lower rates and collectively ordered them to pay over $300 million in penalties, which is accruing interest, CFO Dive previously reported.

Last month Trump appealed the fraud judgment that found him liable for business fraud, accusing New York State Attorney General Letitia James of a “powergrab” and asserting that the loans obtained were repaid in full and no party ever complained, NBC News reported

The FASB is reviewing Tinkelman’s request and “as with all agenda requests…will consider it as part of our process,” according to a statement emailed to CFO Dive by FASB spokesperson Christine Klimek.

In Tinkelman’s letter, he asserts that Codification Section 274 (Personal Financial Statements) requires financial statements to be presented on the basis of estimated current value, but notes that there is no guidance for how it should be determined outside of the section.

He is suggesting four changes to the accounting rules in the personal finance section.They include: 1) forbidding the use of the term “net worth” unless reported figures align with the definition which involves subtracting estimated taxes due upon the sale of assets and payment of liabilities 2) using the term fair value rather than estimated current value 3) clarifying accounting methods related to requirements that assets and liabilities be reported at estimated current value and 4) requiring disclosure of changes in accounting methods.

In an emailed response to questions from CFO Dive, Tinkelman said his hope was that the FASB will use the definition of “Fair value” which it uses elsewhere in the area of personal financial statements.

“I think it is an embarrassment to the profession when standards are so unclear that experts can duel over whether the value for financial purposes should be based on what property could be sold for today, or what it might fetch under very optimistic assumptions,” Tinkelman said in an email.