Fair Value Accounting in the News

Accounting is rarely in the national limelight, but since the first signs of the mortgage meltdown, fair value accounting has been at the center of a heated debate.

A term originally defined by the Securities and Exchange Commission (SEC), fair value accounting assigns value to assets based on what they could earn in a current market transaction. Some blame fair value accounting, in particular FASB Statement No. 157, for forcing banks to accept huge losses on assets affected by the credit crunch, while others stand by fair value accounting, saying it helped expose the problem.

Check out the links below for the most current information on the fair value accounting issue:

News and Headlines

  • September 30, 2008: Sixty members of the U.S. House of Representatives signed a letter (.PDF) asking the Securities and Exchange Commission (SEC) for immediate suspension of “mark to market” (another term for fair value accounting).
  • September 30, 2008: The Center for Audit Quality (CAQ) sent a letter to Congress, stating “the proposals advocating suspension of mark-to-market (or fair value) accounting are not in the best interest of investors or the capital markets and should be rejected.”
  • September 30, 2008: In response, the Securities and Exchange Commission (SEC) and Financial Accounting Standards Board (FASB) immediately released clarifications to fair value accounting concepts to assist preparers, auditors and users of financial information. Both the SEC and FASB stated they were “engaged in extensive consultations with participants in the capital markets, including investors, preparers and auditors, on the application of fair value measurements in the current market environment.”
  • October 1, 2008: The Center for Audit Quality (CAQ), Council of Institutional Investors (CII) and the CFA Institute Centre — representing public company auditors, institutional investors and chartered financial analysts — issued a joint statement, opposing any suspension of “mark-to-market” or “fair value” accounting.
  • October 2, 2008: The International Accounting Standards Board (IASB) commented that the recent clarifications issued by FASB and the SEC were consistent with International Accounting Standard (IAS) 39 Financial Instruments: Recognition and Measurement.
    “The IASB is committed to doing its part in responding the credit crisis and recognises the need to provide additional and needed guidance on determining the fair value of financial instruments in illiquid markets,” said IASB Chairman David Tweedie. “The SEC-FASB staff clarification on fair value accounting is a useful contribution, and our staff believes that it is consistent with IFRSs. We will continue to ensure that any IFRS guidance on fair value measurement is consistent with the clarification that has been provided by the U.S. SEC staff and the FASB staff.”
  • October 7, 2008: The Securities and Exchange Commission (SEC) announced additional details on the process and initial steps it 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. 
  • October 10, 2008: The Financial Accounting Standards Board (FASB) released FASB Staff Position (FSP) FAS 157-3 (.PDF), which clarifies the application of FASB Statement No. 157, "Fair Value Measurements," in a market that is not active and provides an example to illustrate key considerations in determining the fair value of a financial asset when the market for that financial asset is not active.
  • October 13, 2008: The American Bankers Association sent a letter (.PDF) today to Securities and Exchange Commission (SEC) Chairman Cox requesting that among other things, the SEC override the Financial Accounting Standards Board (FASB) Staff Position issued last week on how banks and their auditors are required to apply FASB Statement No. 157. The letter urges the SEC to address in a "more meaningful way the problems of using fair value in dysfunctional markets."
  • October 14, 2008: The International Accounting Standards Board (IASB) provided an update on its work to consider the application of fair value when markets become inactive.  
  • October 15, 2008: According to Reuters, a EU panel voted to ease a fair value accounting rule.
  • October 15, 2008: The Center for Audit Quality (CAQ) sent a letter to Securities and Exchange Commission (SEC) Chairman Christopher Cox, expressing “grave concern” regarding such calls for the SEC to override guidance issued by the Financial Accounting Standards Board (FASB) and the Commission’s staff  and effectively suspend fair value accounting. According to the CAQ, “A move by the SEC to suspend fair value accounting would be a disservice to the capital markets, would be inconsistent with the views of investors, would harm the credibility and independence of the standards setting process, and would run counter to fundamental notice and comment principles.”  
  • October 15, 2008: France releases recommendations (.PDF) on fair value measurement of certain financial instruments.
  • October 16, 2008: The Securities and Exchange Commission (SEC) announced today that on October 29, 2008, at 9 a.m. ET, it will host the first of two roundtables on "mark-to-market" accounting and current market conditions.
  • October 16, 2008: The International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) announced that they will create a global advisory group comprising regulators, preparers, auditors, investors and other users of financial statements. The advisory group will help to ensure that reporting issues arising from the global economic crisis are considered in an internationally co-ordinated manner.
  • October 21, 2008: The Technical Committee of the International Organization of Securities Commissions (IOSCO), following discussions of the important role of accounting standards in the context of the current financial crisis, and in light of the importance of financial reporting standards to the proper functioning of the capital markets, has come together as a community of authorities responsible for capital markets and accounting to reaffirm its commitment to the development and enforcement of high quality accounting standards.
  • October 27, 2008: The National Association of State Boards of Accountancy (NASBA), on behalf of its 55 boards of accountancy, sent a letter of comment (.PDF) to the Securities and Exchange Commission (SEC) in response to the current discussions about fair value accounting. NASBA expressed the need for caution and careful deliberation and due process involving any change in the fair value principle.
  • October 28, 2008: The Securities and Exchange Commission (SEC) announced panelists and agenda for its October 29 mark-to-market accounting roundtable.
  • October 28, 2008: Forbes.com reported that the Securities and Exchange Commission (SEC) will not be releasing additional fair value guidance soon. Read the full article.
  • October 29, 2008: Bloomberg reported that Securities and Exchange Commission (SEC) Chairman Cox says fair value needs "more work." Read the full article.
  • October 31, 2008: The International Accounting Standards Board (IASB) published educational guidance on the application of fair value measurement when markets become inactive.
  • November 9, 2008: A recent article from Reuters announced that the Public Company Accounting Oversight Board is considering releasing additional fair value guidance.
  • December 17, 2008: The Financial Accounting Standards Board (FASB) issued a proposed standard to address applying fair value accounting to assets and liabilities acquired from a business combination. FASB Staff Position FAS 141(R)-a, Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies, would amend FASB Statement No. 141 (revised 2007), Business Combinations.
  • December 30, 2008: A Congressionally-mandated study concluded fair value standards should be improved, not suspended. Read a summary article or the full report (.PDF).

 

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