As the Treasury prepares to purchase toxic assets from ailing institutions, the office of the chief accountant of the Securities and Exchange Commission issued some timely “clarifications on fair value accounting” on September 30. The agency gave a green light to “management’s internal assumptions” as a measure of fair value: “When an active market for a security does not exist, the use of management estimates that incorporate current market participant expectations of future cash flows, and include appropriate risk premiums, is appropriate.” In another accommodative clarification, the SEC noted that the “results of disorderly transactions are not determinative when measuring fair value.” So the fog obscuring these tainted assets remains.
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