The roundtable convened in Washington to examine fair v alue accounting has
heard little support for a major overhaul of the rules during its seond meeting.
Instead, financial industry professionals urged regulators to focus on smaller
changes to improve mark-to-market reporting.
Part of a Securities and Exchange Commission study mandated by Congress earlier
this year when it authorised the Bush administration’s bailout of American
banks, the meeting, Friday, was attended by Thomas Jones, the British vice
chairman of the International Accounting Standards Board (IASB), who observed
but did not speak at the hearing.
Some specialists have blamed fair value rules for contributing to the global
financial crisis by forcing banks and financial services companies to value
assets at market prices even when little or no market exists, which critics say
distorts their value. While participants criticised aspects of the fair value
system in this latest meeting, they endorsed the overall principle.
‘There was pretty general support for not moving away from the fair value
model,’ Mr Jones told Accountancy Age in an interview reacting to the
roundtable. ‘There isn’t a real pragmatic solution that’s not fair value.’
At one point during the gathering, SEC chairman Christopher Cox asked the dozen
panelists if any of them supported replacing the key US standard 157, which
governs mark-to-market accounting. The only participant to reply yes was James
Gilleran, a former director of the Office of Thrift Supervision, who said the
statement should be replaced by the standards of the IASB, which also uses fair
value reporting. Another participant, Kevin Spataro of Group of North American
Insurance Enterprises, said FASB 157 should be amended but not replaced.
Spataro expressed the strongest criticism of fair value rules, saying they
worked when markets were ‘liquid, active, and orderly’ but that in distressed
markets they undervalued assets. ‘It’s not an issue of us not liking the value,’
he said. ‘It’s not that we don’t think it’s the right value.’
With tepid support for doing away with fair value altogether, the panel debated
disclosure rules when firms are valuing assets based on models.
Some panelists argued in favor of more disclosure as a way of giving investors
more confidence in the stated value of the asset.
‘Investors need to know where the number comes from, so there’s credibility and
belief in that number,’ advised Wayne Landsman, a professor at the University of
Others warned that added dozens or even hundreds of pages to financial
statements would not solve the problem.
‘Laying on more disclosure requirements doesn’t necessarily translate into good
information,’ Jay Hanson of McGladrey & Pullen LLP said. He quipped that as
accountants, ‘we’re not very good writers.’
JPMorgan analyst Dane Mott continued his defence of fair value. He said that
FASB 157 ‘works effectively’ and that it ‘provides investors the most
relevant information.’ Mr Mott also pushed back against the impression that
fair value was a new or recent phenomenon, noting that it had been around in
some form for 15 years. FASB 157, he said, ‘did not invent a new form of
accounting here.’ He did voice support for additional disclosure in
financial statements, wryly observing that extensive reporting documents
offered clues to investors about a firm. ‘It’s a quick and dirty way to say
this company is complex and this company is not as complex,’ Mott said.
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