Thursday, April 02, 2009

FASB on Mark-to-Market Rules

by Calculated Risk on 4/02/2009 09:18:00 AM

From Bloomberg: FASB Eases Fair-Value Rules Amid Lawmaker Pressure (ht Mark)

... The changes approved today to fair-value, also known as mark-to-market, allow companies to use “significant” judgment in valuing assets to reduce writedowns on certain investments, including mortgage-backed securities. Accounting analysts say the measure, which can be applied to first-quarter results, may boost banks’ net income by 20 percent or more. FASB approved the changes during a meeting in Norwalk, Connecticut.
Update: From Housing Wire:
If you read the headlines (and most people don’t bother to go much farther beyond the headline than the lead paragraph –- to our collective disgrace), you already think FASB eased the rules for measuring fair value on Thursday. You might believe that it has at last caved in to pressure from banks and Congress, and decided to allow “preparers” and their auditors to use judgment when valuing illiquid assets.

Not so. They are reiterating for the third time that “fair value is the price that would be received to sell the asset in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date.”

And for the second time it is “highlighting and expanding on the relevant principles in FAS 157 that should be considered in estimating fair value when there has been a significant decrease in market activity for the asset.”

The first time, of course, was when they issued FAS 157. The second is the SEC/FASB staff clarifications on fair value accounting issued September 30, 2008. This is the third statement, second clarification and expansion.