Hi Folks,
Maureen Nevin who is a member of this group is having an issue with
her internet connection, so she asked me to pass along the following.
She has a lot of good information on her asburyradio.com website, but
hoped those interested might like to read the following as well:
---------- Forwarded message ----------
From: Jay Hyde <[EMAIL PROTECTED]>
Date: Tue, Sep 30, 2008 at 3:12 PM
Subject: CAQ Urges Congress to Reject Proposals to Suspend
Mark-to-Market (Fair Value) Accounting
To: [EMAIL PROTECTED]
September 30, 2008
Dear Member of Congress:
The Center for Audit Quality (CAQ) believes that proposals advocating
suspension of mark-to-market (or fair value) accounting are not in the
best interest of investors or the capital markets and should be rejected.
The principles of mark-to-market accounting are rooted in the
fundamental virtue of transparency and are central to informed market
decisions and efficient allocation of capital. In our view, investor
confidence would be undermined by efforts designed to mask the actual
value of financial assets at a given point in time.
It is important to underscore that mark-to-market accounting has
contributed positively to revelations about the severity of the
economic crisis facing our country's credit markets and certain
institutions, but it did not create the economic crisis.
Recently, some have suggested that the Securities and Exchange
Commission (Commission or SEC) or the Financial Accounting Standards
Board (FASB) should suspend the application of mark-to-market or fair
value accounting or somehow impose a moratorium on mark-to-market
requirements for certain financial institutions when preparing
financial statements to be used by investors.
Although determining fair values for financial instruments in an
illiquid market can be challenging, the best estimate of the prices
that would be received for such instruments in orderly transactions
occurring at the measurement date remains the most relevant
information for investors and policymakers. To lessen the
uncertainties about the value of these securities, it is critical that
investors continue to have the insight provided by the application of
mark-to-market accounting principles.
Many of the current requirements stem from the Savings & Loan crisis
in the 1980s, when we learned that not knowing the real, current
values of financial instruments held by financial institutions can be
devastating when the bubble finally bursts and institutions are forced
to close their doors. The current requirements provide a uniform and
consistent method to measure market values and provide investors
increased disclosures about those measurements. Suspending
mark-to-market accounting would throw financial reporting back to a
time of less comparability, less consistency and less transparency.
If there are concerns with the impact of asset valuations on capital
requirements of financial institutions, regulators have alternatives
other than obscuring information relevant to investors. Regulators may
modify those requirements based on criteria other than fair value
accounting measurements to the extent they deem appropriate.
Other capital markets participants also have expressed concern about
the lack of transparency that would be created by a suspension of
mark-to-market accounting. The Council of Institutional Investors,
which represents 130 public, corporate and union pension funds with
combined assets of more than $3 trillion, stated in a recent letter to
the SEC that "[a]ny termination or suspension of fair value accounting
will lessen transparency and investor confidence in the capital
markets at a time when such confidence is critical to the stability of
our markets and the overall economy."
Likewise, the CFA Institute, a global, professional association of
more than 97,000 investment professionals with offices around the
world, recently wrote to both members of Congress and the SEC and
noted that "[c]easing fair value reporting will only serve to
undermine the confidence of investors in our financial institutions
and lead to a further crisis of confidence in our government and the
regulatory bodies overseeing those institutions."
The proposed Emergency Economic Stabilization Act of 2008 restates
the authority of the Commission to suspend the application of
Statement of Financial Accounting Standards No. 157, Fair Value
Measurements (FAS 157), and requires that the Commission conduct a
study on the effects of FAS 157 on financial institutions' balance
sheets, the impact of such accounting on bank failures in 2008, the
quality of financial information available to investors, and other
matters, and report its findings to Congress within 90 days. While a
restatement of existing SEC authority and a study of mark-to-market
accounting and its effects are not necessarily harmful in their own
right, efforts to weaken the transparency provided by the current
standard should be avoided, especially in this time of financial
instability.
The CAQ would be pleased to discuss with you any of the points in this
letter at your convenience.
Sincerely,
Cynthia M. Fornelli
Executive Director
Center for Audit Quality
Cc: Henry M. Paulson, Jr., Secretary, Department of Treasury
Ben S. Bernanke, Chairman, Federal Reserve
Christopher Cox, Chairman, SEC
Mark W. Olson, Chairman, PCAOB
Robert H. Herz, Chairman, FASB
All Members of Congress
The CAQ is an autonomous public policy organization serving
investors, public company auditors and the capital markets and is
affiliated with the American Institute of CPAs. The CAQ's mission is
to foster confidence in the audit process and to aid investors and the
markets by advancing constructive suggestions for change rooted in the
profession's core values of integrity, objectivity, honesty and trust.
Based in Washington, D.C., the CAQ consists of approximately 800
member firms that audit or are interested in auditing public companies.
------------------------------------
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