FASB Pledges Guidance on Mark-to-Market Rules Shortly

By Sarah Borchersen-Keto, CCH Washington News Bureau, Contributing Author, the CCH Federal Banking Law Reporter, March 12, 2009.

The Financial Accounting Standards Board (FASB) will seek to provide guidance on mark-to-market accounting rules within the next three weeks, FASB Chairman Robert H. Herz told a House of Representatives subcommittee March 12.

Herz told the House Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises that after gathering extensive input from a variety of capital market participants, the prevailing view urged the FASB not to suspend or weaken mark-to-market accounting rules.

“While bending the rules to favor a particular outcome may seem attractive to some in the short run, in the long run, a biased accounting standard is harmful to investors, creditors and the U.S. economy,” Herz said.

Mark-to-market accounting requires companies to value their assets at current market prices. Companies have been forced to write down billions of dollars in assets due to current market conditions, even though the assets may recover their value in the future.

Subcommittee Chairman Rep. Paul E. Kanjorski, D-Pa., told the hearing that mark-to-market accounting had produced “numerous unintended consequences” that had exacerbated the ongoing economic crisis. Kanjorski warned that if the regulators and standard-setters “do not act now to improve the standards then the Congress will have no other option but to act itself.”

Kanjorski said that if Congress does act it will not result in an outright suspension. “If we do away with the standard entirely, accounting will revert to the very kind of subjectivity and slight of hand that made mark-to-market necessary in the first place,” he said.

House Financial Services Committee Chairman Barney Frank, D-Mass., called for “more realism and flexibility” in mark-to-market accounting. “I hope that within a very short period of time working together we will have a situation in which we will not be constantly told by the people who are the practitioners that mark-to-market is having undue negative effect and doing more harm than good,” he added.