Bank One Corporation - Page 80

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          change FNBC’s method of accounting for its swaps income to a                
          method of accounting that did clearly reflect that income.                  
          Respondent argues that his method of accounting under which each            
          of FNBC’s swaps is valued at its midmarket value clearly                    
          reflected FNBC’s swaps income for each relevant year.                       
               Petitioner replies that FNBC properly reported its swaps               
          income for each relevant year.  Petitioner observes that FNBC:              
          (1) Calculated and reported as swaps income the mid-market values           
          of its swaps and (2) offset that reported income by adjustments             
          for credit risk and administrative costs connected with the                 
          swaps.  Petitioner alleged in its petition that FNBC’s                      
          adjustments were necessary to defer income to match related                 
          expenses.  Petitioner clarifies on brief that the adjustments               
          were necessary to reflect the fair market value of FNBC’s swaps             
          under its mark-to-market methodology.                                       
               Petitioner argues that these cases are a “valuation case”,             
          as opposed to a method of accounting case, and that FNBC’s                  
          valuations must be sustained because its underlying methodology             
          was reasonable.  Alternatively, petitioner argues, the fact that            
          FNBC’s methodology was reasonable means that it must prevail even           
          if these cases are a “method of accounting case”.  According to             
          petitioner, a reasonableness standard controls our decision                 
          because (1) FNBC’s valuations were recurring and business in                
          nature, (2) FNBC’s valuations were the result of an exercise of             






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