How do you use Mark to Market accounting when dealing with an asset
that is not widely traded? You have no data upon which to set a
value.
Also, when a firm goes under and is selling off their assets at a
fire sale, is it fair to use those sale numbers when someone else is
valuing an asset under Mark to Market?
Maybe the realty experts on the board can opine.
If only we had someone on the board who regularly dealt with burden
of valuing unique property? :-)
--- In AsburyPark@yahoogroups.com, "asburycheech" <[EMAIL PROTECTED]>
wrote:
>
> 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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