VideoBankers and other financial industry players who hoped the financial crisis might prompt a suspension of fair-value accounting found their hopes disappointed today. Although improvements in guidance and auditing practices are needed, investors still consider fair-value accounting useful and meaningful, said Securities and Exchange Commission chairman Christopher Cox at a conference of the American Institute of Certified Public Accountants.
Cox's remarks were a clear indication that the SEC's report to Congress will not recommend suspending FAS 157. "Accounting standards aren't just another financial rudder to be pulled when the economic ship drifts in the wrong direction," said Cox. "Instead they are the rivets in the hull, and you risk the integrity of the entire economy by removing them."
Included in the $700 billion bailout package Congress passed in October was a requirement that the SEC study the impact of fair-value accounting. The final law also reiterated the SEC's authority to suspend FAS 157 — the accounting standard that defines how fair-value measurements should be made — if the SEC determined that to be in the best interests of the nation. Cox said the SEC's report would be delivered on January 2.
Cox's full remarks follow:
Thank you for that kind introduction. Good morning to all of you, and let me add my welcome to the AICPA's National Conference on Current SEC and PCAOB Developments. It is a pleasure to join you at this Conference once again. And while the Conference topics this year are focused as always on the cutting edge issues that concern you in your practice, more than ever before the subjects that you'll cover this week are of great importance to our nation and the economy as a whole.
From issues such as fair value measurement, to the future of international accounting and reporting, to corporate governance and MD&A and the SEC's coming interactive data revolution, the Conference agenda is truly cutting edge and consequential. As leaders in your profession, I am especially grateful that you have taken the time to be here, in order to carry forward this important work and to help confront these challenges that concern not only our nation's economy but the world's.
I want you to know that the Securities and Exchange Commission is a strong supporter of your efforts, and that's why not only I, but also a range of top staff from the SEC, including our Chief Accountant, Conrad Hewitt; John White, the Director of the Division of Corporation Finance; and Jim Kroeker and Paul Beswick, our Deputy Chief Accountants, will be participating with you in this event.
The timing for the presentations you will hear could not be more critical. And since the issues you are addressing in your daily work go far beyond the normal conference agenda, to the very core of the financial turmoil in our financial system, it's fitting that the people who will be speaking are leading the efforts to help investors and markets manage through that turmoil with sound and consistent accounting standards.
The AICPA's 121 year history, dating back to 1887, makes this one of the oldest professional organizations in the country. From the founding of the American Association of Public Accountants, as it was then called, with a membership of only a few hundred to your more than a third of a million members today, the accounting profession has been vital to our nation's economic health and prosperity. Americans have always entrusted you with great responsibility, both individually and as a profession. And through thick and thin you have maintained their confidence.
Even in the post-Sarbanes Oxley, post-Enron environment, accountants have continued to enjoy a solid reputation among the public, and among business decision makers. That's a testament to your integrity and professional competence. Business executives — your clients — give you a favorability rating of 95%. At the SEC, where we're focused on investor protection, we're most impressed that investors give you a favorability rating of 97%. That's as close to perfect as you're likely to get in this life.
None of this means that anyone in this room can afford to be complacent. You have a reputation, and a future, to protect. Together, we've all got to remain vigilant.The role of the accounting profession, at its core, is parallel to that of the SEC. We both have the goal of ensuring that full and accurate financial information is reported by companies. And in fact, given that the AICPA's history dates back even further than the SEC's, it was left for accountants to handle the Panic of 1884 on their own when this market crash hit the country.
Like the current, global financial turmoil, America's Panic of 1884 was also precipitated by a credit crisis. When New York's national banks refused to lend any additional money and began calling in their loans from borrowers in the West and South, at a time when the nation didn't have the central bank policy levers that are used today, it caused a dramatic spike in interest rates. One contemporary commentator noted that loans at the time "commanded three percent interest and commission per day on call" — or a staggering annualized compound interest rate of several hundred thousand percent. Although the aftermath of the panic was less serious than some other economic shocks, nearly 11,000 businesses failed in 1884 alone.
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