CFA Institute officials urged congressional leaders and the SEC to keep fair-value accounting as part of any financial rescue effort.
In a letter sent to the SEC and Capitol Hill by Jeffrey J. Diermeier, CEO and president, and Patrick Finnegan, director of financial reporting policy, the institute wants leaders to reject requests by the financial community to do away with the fair-value reporting requirements of Financial Accounting Standards Board Statement 157.
Ceasing fair-value reporting will only serve to undermine the confidence of investors in our financial institutions and lead to a further crisis of confidence in our government and the regulatory bodies overseeing those institutions, the letter said.
The process of stabilizing the global financial markets and reinvigorating liquidity starts with improving the transparency of financial institutions. Without such transparency, investors will remain skeptical about the depth of problems plaguing the system and will be unwilling to invest in those institutions or put their capital at risk.
Critics of fair value suggested that, when market prices are depressed or markets are in crisis, fair value leads to a continuous cycle of asset write-downs, capital decay, and liquidity erosion, according to the letter. However, the causes of the massive asset write-downs we have observed have nothing to do with financial reporting, but everything to do with the need for effective stewardship. Restoring effective risk management at our financial institutions is the most critical issue to be remedied.
The CFA Institute is a global association of more than 97,000 investment professionals.