In a release sent out today, Andrew Davidson & Co. lashed out on existing accounting rules, stating that many financial firms are addressing accounting issues such as FAS-91, FAS 133 and Sarbanes Oxley instead of focusing on impending market risks including potential home price depreciation and credit risk in IO loans.

"Jumping through such accounting hoops dominates much of the time of financial firm executives," the firm said. "Maybe this would be fine if the accounting rules were bringing clarity to investors, but these accounting rules only bring confusion to the presentation of financial results." Flawed accounting, including FAS-91 and FAS-133, will result in sub-optimal behavior, the firm states. "Faced with such twisted rules, firms will seek first to avoid the uncertainty created by the rules." This will result in techniques like "smoothing, threshold levels and hedging to models rather than to markets."

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