FASB Head: Mark-To-Market Relaxation Within Three Weeks
The head of the Financial Accounting Standards Board (FASB) -- which, along with the SEC, oversees corporate accounting -- told a House panel today that "in three weeks" his organization will issue new guidance on mark-to-market rules, allowing financial firms some flexibility in accounting for the toxic assets poisoning their balance sheets, the Associated Press is reporting.
Testifying before Rep. Paul Kanjorski's (D-Penn.) Capital Markets, Insurance and Government Sponsored Enterprises subcommittee, FASB chairman Robert Herz said that the new rules -- which had been promised by June -- could actually be delivered within three weeks.
Kanjorski pushed Herz to speed up issuance of the rules under the threat of new legislation. Kanjorski believes that financial firms need relief from strict mark-to-market accounting rules and was prepared to override FASB with a new law.
Simply put, mark-to-market accounting rules, enforced by the SEC and FASB, require a company to value -- or "mark" -- assets on its books based on the price they would bring if they were sold today.
In theory, mark-to-market provides good information for potential investors and prevents businesses from assigning any value they choose -- likely a higher one -- to things they own.
But mark-to-market can cripple businesses when no market for an asset exists, like now.
Some have called for the suspension of mark-to-market accounting to allow the big banks to get back on their feet but others argue against it, saying that killing the accounting rules would give companies incentive to create balance sheets that are pure fiction.
March 12, 2009; 2:45 PM ET
Categories: The Ticker | Tags: Kanjorski, Robert Herz, mark to market
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