SEC demands halt to fair value changes

The US regulator is ready to release a report this week which will advise its
standard-setter to freeze changes to fair value, while recommending companies
post additional information on their websites for the purposes of shareholders.

A committee at the Securities
and Exchange Commission will tell the
Financial Accounting Standards
Board to hold off introducing new changes to fair value until other work on
measurements have been completed.

The committee also made observations that the current use of fair value in a
‘mixed-attribute’ model – in which some assets and liabilities are measured
using fair value, while others are measured using historical cost – is complex
and confusing.

The observation has upset some who have interpreted this as a failure to
endorse fair value – currently favoured by the International Accounting
Standards Board and the Financial Accounting Standards Board.

‘We think the discussions [in the final report] will slow down the process in
moving toward fair value,’ Glenn Doggett, a policy analyst at CFA Institute,
told Financial
Week.

‘It was one of the more difficult issues we tackled,’ said Dennis Beresford,
an accounting professor at the University of Georgia and member of the
committee.

The committee did not repeat calls for existing fair value rules but instead
recommended a sample chart of how companies could break out accrual and cash
items in a spreadsheet to allow investors to segment fair-value measurements,’
Beresford said.

Committee chair Robert Pozen said that the recommendations are not intended
to require any votes by the US Congress and that they can easily be taken up by
the SEC.

‘Whoever is in the next commission, I believe they will continue reading this
document. The recommendations are all very doable. We’re trying to avoid having
stillborn types of suggestions,’ Pozen said.

The committee also suggested that companies use their websites as tools of
information, with the inclusion of hyperlinks, executive summaries of annual
reports and additional shareholder information.

Today the SEC will also consider whether to publish an interpretive release
to provide guidance regarding the use of company websites under the Securities
and Exchange Act of 1934 and the anti-fraud provisions of federal securities
laws.

The committee’s recommendation – that companies will no longer have to
restate financial reports so long as the accounting errors are not material –
has also come under fire from consumer groups in the US, concerned that this
will lead to companies obscuring or ignoring past errors.

The committee has one final vote on recommendations this Thursday, after
which it will release its final report.

Further reading:

SEC
to assess IFRS performance during credit crunch