The U.S. Securities and Exchange Commission is holding a public roundtable Wednesday on whether changing asset accounting rules could help ease the current economic turmoil.
The SEC and accounting authorities came up with the prevailing “mark-to-market” account rules to require companies to include updated estimates of the value of assets and liabilities in their financial statements, rather than relying on the initial values, or updated “adjusted” values.
Supporters say the mark-to-market rules make public companies’ financial statements easier to understand. Critics say the rules cause investors to panic over asset value fluctuations that might have caused few problems for the companies or the investors in the past.
During the SEC panel discussion, which will start at 9 a.m., participants will talk about the usefulness of mark-to-market accounting to investors and regulators; the effects of mark-to-market accounting on financial reporting by financial institutions; the potential market behavior effects resulting from mark-to-market accounting; and thoughts about how to improve current accounting standards.
The scheduled panelists will include investors, issuers, auditors and others with experience in mark-to-market accounting by financial institutions, SEC officials say.
One panel will include Scott Evans, an executive vice president at Teachers Insurance and Annuity Association-College Retirement Equities Fund, New York, and Richard Murray, a managing director at Swiss Reinsurance Company, Zurich.
Murray is chairman of the Center for Capital Markets Competitiveness at the U.S. Chamber of Commerce, Washington.
A second panel will include Bradley Hunkler, the controller for Western & Southern Financial Group Inc., Cincinnati.
Murray already has submitted one comment letter on the mark-to-market accounting issue on behalf of the Center for Capital Markets Competitiveness. On behalf of the center, Murray also joined with representatives for 5 other financial services groups to submit another comment letter.
When Murray wrote on his own, he asked the Financial Accounting Standards Board, Norwalk, Conn., and the International Accounting Standards Board, London, to conduct a broad review of the unintended consequences of implementing the current mark-to-market reporting standards.
“Proponents feel that fair value has promoted transparency and exposed problems in the financial markets,” Murray writes. “Critics of fair value have stated that use of mark to market is inherently pro-cyclical, forcing drastic write down of assets and liabilities in an illiquid market.”
The critics want to suspend or overturn mark-to-market accounting rules, and that kind of change could cause new problems, Murray warns.
Instead of simply suspending the rules, FASB and IASB should develop an emergency remedial action plan and a broader action plan, Murray writes.
“If we fail to address this crisis now, the global economy faces long-term dire consequences that may cause unnecessary dislocations and pain,” Murray writes.
When Murray submitted the joint comment, he participated in a group of signatories that included Michael Monahan, a director at the American Council of Life Insurers, Washington, and Steve Bartlett, president of the Financial Services Roundtable, Washington.
The signers of that letter ask the SEC to elaborate on the use of the word “judgment” in connection with discussions of fair value accounting.
A recent joint clarification issued by the SEC and FASB “repeatedly uses the term judgment, while the term is almost absent in the FASB guidance,” the signers of the joint letter write. “These different tones further cloud fair value accounting during the current crisis.”
Elaborating on the meaning of “judgment” would “provide the clarity needed by management to appropriately value assets in inactive markets, and give investors the transparent information needed to make informed decisions,” the signers write.