GAAP and IFRS

FASB Delays Fair-value Talk

At a critical time, with attacks increasing, the board postpones a webcast about FAS 157. It leaves the discussion up to lawmakers at least for thi...
Sarah JohnsonSeptember 29, 2008

As their fair-value accounting rules continue to get heat from bankers and legislators, the Financial Accounting Standards Board has postponed a webcast designed to discuss the issues related to FAS 157, its framework for marking assets and liabilities to market.

The event — originally scheduled for 11 a.m. today — has been put off “in light of recent events in the financial markets and the legislation under consideration by the administration and Congress,” the board said in an announcement made Friday.

In the latest manifestation of the heavy flak flying around fair value, critics have been emphasizing the great power that the Securities and Exchange Commission will have — to suspend mark-to-market accounting “for any issuer” and to launch probes into its role in the current financial crisis.

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The standard’s future could be decided on Capitol Hill, as a provision in the proposed $700 billion bailout plan for financial institutions highlights the fact the SEC has the authority to yank a company’s requirement to follow FAS 157. The discussion draft of the bill up for vote by the House today says the SEC has that right, as long as the suspension of the accounting rule is in the public interest and will protect investors.

The proposed bill also calls on the SEC to conduct a study on mark-to-market accounting and its effects on financial institutions’ balance sheets and their stability over the past year. Indeed, dissenters of fair-value accounting have blamed FAS 157 for contributing to the financial turmoil on Wall Street, following large write-downs throughout the financial sector.

Last week, the American Bankers Association met with SEC Chairman Christopher Cox to explain why guidance is needed for marking an asset in an illiquid market. As written, FAS 157 does not explain what to do when “sellers are not selling and typical buyers are not buying in meaningful volumes,” the bank lobbying group wrote in a letter to Cox.

FASB’s webcast would have been its fifth this year. Board spokeswoman Christine Klimek says a few thousand people have signed up for the webcasts, depending on the topic, which in the past have included global accounting standards and reporting issues during the credit crisis.

FASB still plans to reschedule the fair-value webcast but has not set a date. The original agenda would have featured board member Leslie Seidman, SEC deputy chief accountant Jim Kroeker, and Ernst & Young director of valuation Don Charles. It will be redesigned to “provide real-time insights about the role of accounting standard in providing transparency to investors,” FASB says.

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