Goldman to sever links to industry group

Goldman Sachs Group Inc. said it would likely sever its links with the Institute of International Finance Inc. of Washington after the association called for relaxing controversial accounting rules on asset valuation, according to a Financial Times report. Under the IIF proposal, banks would be allowed to use historical, rather than market prices, to value illiquid assets — a change that could reduce the negative impact of the credit crisis on their strained balance sheets. Goldman said it did not agree with the IIF’s proposals and opposed any changes in “fair value” accounting, an official at the New York-based investment bank said. “The proposals are extraordinary,” the official said. He referred to the plan to relax accounting standards as “Alice-in-Wonderland accounting.” The official said Goldman had a representative on the IIF committee responsible for the proposal but was not directly involved in its drafting, according to the report. Goldman said it would almost certainly leave the IIF, a global organization that provides research and policy advocacy to financial institutions, following the organization’s report. Morgan Stanley of New York also agreed with the principle of fair value accounting, but it had not yet decided whether to leave the IIF following its proposals. The protest by Goldman and Morgan Stanley underlines the divergent opinions among financial firms over changes in rules that have required them to take some $300 billion in write-downs, the Financial Times reported.