The US Securities and Exchange Commission (SEC) has recommended
against the suspension of fair value accounting standards in a
report to US Congress. The report follows a study into
mark-to-market accounting that considered alternative accounting
standards to those provided in Financial Accounting Standards Board
The SEC was given the authority to suspend mark-to-market
accounting and directed to conduct the study by the Emergency
Economic Stabilization Act of 2008
The 211-page report calls for improvements to existing practice,
including reconsidering the accounting for impairments.
The development of additional guidance for determining fair
value of investments in inactive markets, including situations
where market prices are not readily available, was noted as another
area requiring attention.
Enhancing existing disclosure and presentation requirements
related to the effect of fair value in the financial statements was
also recommended, as were education efforts to reinforce the need
for management judgment in the determination of fair value
No role in bank failures
The report said fair value accounting did not appear to play a
meaningful role in the bank failures that occurred in 2008.
It said US bank failures appeared to be the result of growing
probable credit losses, concerns about asset quality and eroding
lender and investor confidence.
The Center for Audit Quality (CAQ) and the American Institute of
Certified Public Accountants (AICPA) have welcomed the
AICPA chief executive Barry Melancon said the finding that fair
value accounting provides increased transparency and allows for
better decision-making on the part of investors is consistent with
the AICPA’s position.
CAQ executive director Cindy Fornelli told The
Accountant that investors should be pleased that the report
was “very thoughtful” and came out very strongly against the
suspension of fair value accounting.
“It is very important to investors that fair value accounting
not be hampered in any way because that gives them the transparency
that they need in the market place,” she said.
The study was directed by James Kroeker, who was recently named
as the SEC’s acting chief accountant.