US accounting board, SEC discuss fair value-source

NEW YORK/WASHINGTON, Sept 29 (Reuters) – The Financial Accounting Standards Board, which sets U.S. accounting rules, is in discussions with the U.S. Securities and Exchange Commission about whether more guidance on fair value accounting rules is needed, a person familiar with the matter said.

Additional guidance related to the accounting rule, known as FAS 157, may or may not result from the discussions, the person said.

Fair value, or mark-to-market accounting requires financial firms to value assets based on what they could fetch in a current market transaction. New rules requiring broader use of the standard have been partially blamed for forcing banks to take big write-downs on the values of assets affected by the credit crunch.

SEC spokesman John Nester said the agency is "working closely with U.S. and international regulators and standard setters on the issues related to fair value."

It was unclear whether the SEC and FASB would issue guidance before the end of the third quarter, which ends on Tuesday.

Mark-to-market rules, which require companies to disclose more about the market values of their investments took full effect this year, reversing the prior practice of recording many asset values at historical cost. As credit markets tightened over the past year and asset values plunged, financial firms have been forced to take billions in write-downs due to the change.

Financial services companies, in particular banks, have been pressing the SEC to provide guidance.

Last Thursday, the American Bankers Association met with the SEC’s chief accountant, as well as high-level officials at the FASB, U.S. audit watchdog the Public Company Accounting Oversight Board, and the eight largest accounting firms.

"(Fair value accounting) does not give guidance as what to do in this market," said Donna Fisher, director of tax and accounting at the American Bankers Association, which represents banks of all sizes.

ABA, which has been lobbying policymakers and regulators for months, upped the ante recently as more and more banks told the association their accountants are advising them to use the fire-sale value.

The Financial Services Roundtable, a lobbying group representing the largest financial services firms, is also urging the SEC to change the rule. The Roundtable is urging alternative definitions for fair value in illiquid markets that focus on the long term value of a security if the security does not require immediate liquidation.

"We are still studying the issues concerning the complexities of fair value and interacting with market participants, including investors, to understand the challenges in using and understanding fair value," the SEC’s chief accountant Conrad Hewitt said late last week.

Congress has also been contemplating changes to mark-to- market. The proposed $700 billion bailout included provisions that would have allowed the SEC to suspend FAS 157 and would have mandated a study on the impact of mark-to-market accounting standards. The U.S. House of Representatives unexpectedly rejected the plan on Monday.

The bailout was among the items being discussed by the FASB and the SEC, this person said, because if the government stepped into the market as a buyer, it could potentially change the market pegs that financial firms use to come up with fair value.

But investors are loathe to see any suspension of the fair value rules, as many have lauded the increased transparency the new rules provided.

In a survey of about 3,200 investment professionals from the CFA Institute last week, 73 percent of investors said financial firms should still be required to write-down the value of derivatives to current market values.

"It provides investors with better information to make their decisions," said David Larsen, managing director at financial advisory firm Duff and Phelps. (Reporting by Emily Chasan in New York, Rachelle Younglai in Washington, editing by Maureen Bavdek and Andre Grenon)

Source: Reuters

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