WASHINGTON — Accounting rules-setters assured Congress last week that changes to the much-reviled rules over mark-to-market accounting are well on their way, offering much-needed relief for credit unions and other financial institutions.
The head of the Financial Accounting Standards Board said the FASB plans to approve new guidance for valuing impaired assets; how to value assets in inactive markets and what values should be applied in distress sales. "We have announced a number of actions around more guidance on valuing inactive and illiquid markets," Robert Herz, chairman of the five-member panel, said during a hearing on mark-to-market accounting before a House Financial Services subcommittee.
In a rare show of consensus, lawmakers from both the Democrats and Republicans agreed that FASB should amend the rules on mark-to-market, also known as fair value accounting, to recognize the vast dimunition in value of assets, particularly mortgages-backed securities, derivatives, and other financial instruments during the financial crisis.
The FASB, though, is an independent trade association that sets rules for generally accepted accounting principals, or GAAP, which all financial entities and businesses must follow.
Lawmakers threatened to rein in the FASB's independence if it does not act to relieve some of the stress caused by mark-to-market. "Just get i t done. Stop dithering. Don't make us tell you what to do," said Rep. Michael Capuano, D-Mass.
One bill would give Congress authority over the FASB. But several lawmakers said they did not want to compromise the FASB's independence, just to prod it to act.
Herz promised fast action. In response to a question from one committee member, he said he believes the FASB could act as soon as in three weeks, by the end of the first quarter.
Mark-to-market is being widely blamed for much of the troubles in the corporate credit union system, where U.S. Central FCU and seven other corporates have recorded almost $18 billion in market-value losses on their books, rendering several of them insolvent.
When one committee member asked FASB's Herz how soon financial regulators could adopt any changes to the rules, Herz said because the regulators already follow GAAP the changes would apply immediately after they are voted by the full FASB.
Herz said he hopes the new guidance would encompass some of the weaknesses that have been targeted in mark-to-market. For instance, he believes some auditors rely too much on the last trade of a security in determining its market value-even if there is no active market for the security. For another, there is no, and has never really been, a standard way, such as an organized market, for things like mortgage-backed securities, derivatives, and other over-the-counter traded instruments.
In some cases, said the FASB chief, auditors should weigh cash flows more in establishing a value.
