http://www.bloomberg.com/apps/news?pid=20601087&sid=aF7mM2z4swgU&refer=home
Excerpt from the article:
Congressmen, banking lobbyists and companies including American International Group Inc. have urged the SEC to place a moratorium on fair-value accounting, saying it forces firms to report losses that they never expect to incur. Federal Reserve Chairman Ben S. Bernanke and other proponents say a suspension would erode confidence that firms are owning up to losses.
``In the past couple of weeks, fair-value accounting has been under attack,'' JPMorgan Chase & Co. analyst Dane Mott wrote in a report today. ``Blaming fair-value accounting for the credit crisis is a lot like going to a doctor for a diagnosis and then blaming him for telling you that you are sick.''
Right - the point of financial statements is to give you an accurate picture of your company at any given time. If something is glaringly out of line, you have an opportunity to make it right. And, since everyone is using the same rules we can make a judgement about company's relative financial health.
If all you do is modify the rules of the financial statement so you can get a loan or entice shareholders, then you're not really creating an accurate picture of the your company's financial health.
This seems obvious to me...I think the people just want a quick fix or something so this will all go away.
The article indicates FASB and SEC probably won't change the rules. They'll recommend something called mark-to-model.
From investopedia:
http://www.investopedia.com/terms/m/mark_to_model.asp
The pricing of a specific investment position or portfolio based on internal assumptions or financial models. This contrasts with traditional mark-to-market valuations, in which market prices are used to calculate values as well as the losses or gains on positions. Assets that must be marked-to-model either don't have a regular market that provides accurate pricing, or valuations rely on a complex set of reference variables and time frames. This creates a situation in which guesswork and assumptions must be used to assign value to an asset.These assets are typically derivative contracts or securitized cash flow instruments, and most do not have liquid trading markets.
Mark-to-model assets essentially leave themselves open to interpretation, and this can create risk for investors. The dangers of mark-to-model assets occurred during the subprime mortgage meltdown beginning in 2007. Billions of dollars in securitized mortgage assets had to be written off on company balance sheets because the valuation assumptions used turned out to be inaccurate. Many of the mark-to-model valuations assumed liquid and orderly secondary markets and historical default levels. These assumptions proved wrong when secondary liquidity dried up and mortgage default rates spiked well above normal levels. Largely as a result of the balance sheet problems faced with securitized mortgage products, the Financial Accounting Standards Board (FASB) issued a statement in November of 2007 requiring all publicly traded companies to disclose any assets on their balance sheets that rely on mark-to-model valuations beginning in the 2008 fiscal year. This rule change will allow investors to identify the dollar value owned by each company that holds these types of assets.
http://www.investopedia.com/terms/m/marktomarket.asp
1. The act of recording the price or value of a security, portfolio or account to reflect its current market value rather than its book value. 2. In terms of mutual funds, a MTM is when the net asset value (NAV) of the fund is valued upon the most current market values.
1. This is done most often in futures accounts to make sure that margin requirements are being met. If the current market value causes the margin account to fall below its required level, the trader will be faced with a margin call.2. Mutual funds are marked to market on a daily basis at the market close so that investors have an idea of the fund's NAV.
No comments:
Post a Comment