There has been a lot of debate in the media and blogosphere on Mark-To-Market accounting a.k.a. Fair Value Accounting. As a result of the debate and the escalation of the conversation to Washington, the recent baiout legislation has mandated a study be conducted by the SEC. Below is from the SEC’s website:
Washington, D.C., Oct. 7, 2008 — The Securities and Exchange Commission today announced additional details on the process and initial steps that the SEC has undertaken to conduct a study on “mark-to-market” accounting, as authorized by Sec. 133 of the Emergency Economic Stabilization Act of 2008, signed into law by President Bush last Friday.
The details of the requirements of the study are below:
STUDY ON MARK-TO-MARKET ACCOUNTING
- STUDY.—The Securities and Exchange Commission, in consultation with the Board [of Governors of the Federal Reserve System] and the Secretary [of the Treasury], shall conduct a study on mark-to-market accounting standards as provided in Statement Number 157 of the Financial Accounting Standards Board, as such standards are applicable to financial institutions, including depository institutions. Such a study shall consider at a minimum—
- the effects of such accounting standards on a financial institution’s balance sheet;
- the impacts of such accounting on bank failures in 2008;
- the impact of such standards on the quality of financial information available to investors;
- the process used by the Financial Accounting Standards Board in developing accounting standards;
- the advisability and feasibility of modifications to such standards; and
- alternative accounting standards to those provided in such Statement Number 157.
- REPORT.—The Securities and Exchange Commission shall submit to Congress a report of such study before the end of the 90-day period beginning on the date of the enactment of this Act containing the findings and determinations of the Commission, including such administrative and legislative recommendations as the Commission determines appropriate.
As the wonder of technology creates opportunities for the democratic process to be exercised, the SEC is requesting comments from individuals and organizations. You can submit comments directly to the SEC here: Submit comments on 4-573.
Equally as interesting, if this topic floats your boat, are some of the comments posted so far. A list of all comments received are a matter of public record and are available here. A couple of posts from branded organizations are linked to below:
The full content from the SEC is available on their website at: http://www.sec.gov/spotlight/fairvalue.htm.
Lastly, on October 10, 2008, FASB produced a “clarification” on mark-to-market of hard to value assets. While the update posted to their website may be comforting to some, it does little to solve the opacity of market pricing for hard-to-value assets, encouraging only the use of logic and reason when making valuation decisions, encouraging rationality when considering market signals that may be equally too low or too high. Sadly, logic and reason are two principles that are short in the market today.
New—FASB Issues FASB Staff Position No. 157-3, Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active (Posted: 10/10/08)
To read the full document just click here: FSP FAS 157-3