Accounting issues arising from illiquid market conditions

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04 Oct 2007

The Center for Audit Quality (CAQ) issued three white papers addressing key accounting issues arising from the current illiquid market conditions from the perspective of existing United States GAAP.

While the papers are written in a US GAAP context, the issues are likely to be of interest in an IFRS context as well. The CAQ  was created by the American Institute of CPAs "to foster confidence in the audit process and to aid investors and the capital markets by advancing constructive suggestions for change rooted in the profession's core values of integrity, objectivity, honesty and trust".

Download the three CAQ white papers:

  • Fair Value Measurements in Illiquid (or Less Liquid) Markets (PDF 32k). The paper discusses measurement of fair value under existing US GAAP (most of which is contained in SFAS 157 Fair Value Measurements) in the context of illiquid (or less liquid) market conditions that currently exist in many segments of the credit markets. Although much of the discussion is in the context of assets backed by subprime mortgage loans, the GAAP principles discussed regarding the measurement of fair value are also applicable to the measurement of the fair value of other assets (such as unsecuritized assets), not just those backed by subprime mortgage loans.
  • Consolidation of Commercial Paper Conduits (PDF 31k). The objective of this paper is to discuss the application of FASB Interpretation No. 46 (revised December 2003) Consolidation of Variable Interest Entities by sponsors of commercial paper conduits, particularly as impacted by market conditions that currently exist in many segments of the credit markets, including illiquid (or less liquid) conditions in the commercial paper markets.
  • Accounting for Underwriting and Loan Commitments (PDF 39k). This paper discusses existing US GAAP associated with commitments to lend money or underwrite securities in the context of illiquid (or less liquid) market conditions that currently exist in many segments of the credit markets.

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