AICPA CAQ has concerns about accounting sections of 'bailout bill'

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02 Oct 2008

The United States Senate has passed (vote 74 to 25) a version of the so-called 'Financial Institutions Bailout Bill'.

The House of Representatives (which previously rejected a version of the bill) will consider a similar bill tomorrow. In our News Story of 29 September 2008, we identified two sections of the House's draft bill that relate to fair value measurement issues:
  • Sec. 132. Authority to suspend mark-to-market accounting
  • Sec. 133. Study on mark-to-market accounting
Those two sections remain in the version of the bill that the Senate voted on yesterday. On 30 September 2008, the Center for Audit Quality (CAQ) of the American Institute of CPAs (AICPA) sent a Letter to All Members of Congress (PDF 61k) stating 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 letter states:

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 or the Financial Accounting Standards Board 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.

Views similar to the CAQ's were expressed publicly by the CFA Institute and the Council of Institutional Investors.
Click to view the 'Financial Institutions Bailout Bill' (PDF 596k).


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