US Congress is examining 'mark-to-market accounting'

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08 Mar 2009

The US House of Representatives Financial Services Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises will hold a hearing next week on mark-to-market accounting for financial instruments.

The hearing will take place on 12 March 2009 beginning at 10:00am in Washington. The hearing notice states the purpose of the hearing as follows:

To examine the mark-to-market accounting rules that many contend have exacerbated the current troubles in the financial industry and in the broader economy. The standard requires companies to value assets they hold at current market values. For assets that are frozen and have a diminished current market value but may recover value in the future, the standard has proven problematic. Companies are then forced to write-down billions in assets, which can lead to further write-downs elsewhere.

In announcing the hearing, Congressman Paul E. Kanjorski, chairman of the subcommittee said:

Illiquid markets have resulted in great difficulty in valuing sizable assets. Some have therefore complained about fair value accounting and sought to eliminate it. While companies need stability, investors still need accurate information. We therefore cannot allow for fantasy accounting that wishes away bad assets by merely concealing them. As a result, we will seek at this hearing to engage in a constructive, thoughtful conversation with a diverse range of viewpoints aimed at identifying fair-minded, incremental, and achievable fixes to this problem. In short, I want to find a way – within the existing independent standard-setting structure – to still provide investors with the information needed to make effective decisions without continuing to impose undue burdens on financial institutions. Each of our anticipated witnesses will have the opportunity to contribute as we all pursue consensus solutions together to this thorny, contentious issue.

Click for the hearing notice (PDF 91k). The list of witnesses and prepared statements and testimony will be available here. In a press conference (PDF 161k) on 5 March 2009, Representative Barney Frank, chairman of the Committee on Financial Services, responded to a question on whether the Congress should act to suspend mark-to-market accounting as follows:

I do not think it is a good idea for Congress to legislate accounting. You know, there is a principle that, if you think a subject should not be dealt with to some extent politically, you should not ask 535 politicians to decide it.

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