The US Securities and Exchange
Commission (SEC) held two round tables this month to gather input
for a study on mark-to-market accounting, which was mandated in the
recent Emergency Economic Stabilization Act.

The first round table saw bankers and accountants conflict over
the suitability of fair value accounting measures. The second heard
panellists’ views on the independence of the standard-setting
process, the effects of Financial Accounting Standards Board (FASB)
Statement 157 Fair Value Measurement (FAS 157) on financial
institutions’ balance sheets and its impact on 2008 bank
failures.

Chairman of financial services consultant Secura Group and
former banker William Isaac said in a written statement at the
first round table that the FASB and the SEC should immediately
withdraw FAS 157.

“I believe it is beyond dispute that mark-to-market accounting
has been extremely and needlessly destructive of bank capital in
the past year and is a major cause of the current credit crisis and
economic downturn,” he wrote.

But PricewaterhouseCoopers US assurance managing partner Vincent
Colman said fair value reporting was the best method for providing
the level of transparency markets need to function effectively,
despite any imperfections that it may have.

“Any fundamental change to fair value reporting runs the risk of
reducing confidence among investors and other market participants,
which in turn would likely restrict the flow of capital,” he
said.

Defending independence

At the second round table, one panellist, University of North
Carolina professor of accounting Wayne Landsman, defended the
independence of the International Accounting Standards Board and
FASB.

He said it was not advisable for any accounting changes to take
place because of government intervention in the standard-setting
process.

Landsman added that FAS 157 did not cause banks to write down
their assets in 2008.

“The role FAS 157 played in contributing to these pro-cyclical
effects is, in my view, highly overstated. At most, the
contribution is incremental, bank assets became impaired and
write-downs had to occur,” he said .

The SEC is due to publish the results of the study in
January.

Nicholas Moody and Melanie White