The Council of Institutional Investors, the CFA Institute and the Center for Audit Quality oppose any suspension of “mark-to-market” or “fair-value” accounting, according to a joint statement issued Oct. 1.
And a survey by the CFA Institute of its members in the European Union also found opposition to any such move.
“Suspending fair-value accounting during these challenging economic times would deprive investors of critical financial information when it is needed most,” the joint statement said.
The revised financial market bailout proposal gives the Securities and Exchange Commission authority to suspend use of the Financial Accounting Standards Board's Statement 157, which provides a framework for valuation measurement when no active market exists.
“Fair-value accounting with robust disclosures provides more accurate, timely and comparable information to investors than amounts that would be reported under other alternative accounting approaches,” the joint statement said. “Investors have a right to know the current value of an investment, even if the investment is falling short of past or future expectations ... The proposed suspension is unnecessary and counterproductive. It would not help solve our economic difficulties.”
The FASB and the SEC issued a clarification of fair-value accounting in an effort to bolster implementation of mark-to-market measurements during the market turmoil, according to a joint news release Oct. 1.
FASB also proposed issuing additional interpretive guidance on fair-value measurement under the rule's goal of achieving better consistency and comparability. The board provided for a public comment period through Oct. 9 on the proposals.
The clarifications the SEC and FASB issued noted, “When an active market for a security does not exist, the use of management estimates that incorporate current market participant expectations of future cash flows, and include appropriate risk premiums, is acceptable” under Statement 157.
Among other points of clarification, the SEC and FASB statement said, “The results of disorderly transactions are not determinative when measuring fair value. The concept of a fair-value measurement assumes an orderly transaction between market participants ... Distressed or forced liquidation sales are not orderly transactions, and thus the fact that a transaction is distressed or forced should be considered when weighing the available evidence. Determining whether a particular transaction is forced or disorderly requires judgment.”