Thursday, October 9, 2008

Mark to myth is getting a look

WASHINGTON -- The Securities and Exchange Commission is telling chief financial officers that if they're estimating the value of troubled assets, they need to better explain what they're doing.
The SEC sent letters to about 30 CFOs of financial institutions last month outlining information they should include in financial statements if they're using measures other than market prices for valuing certain assets. As reported, the SEC also issued guidance last week to companies saying they needn't rely exclusively on market prices...

Financial institutions are required to value their securities at the market price, known as mark-to-market accounting. Banks and lawmakers have raised concerns that mark-to-market accounting is exacerbating the financial crisis by forcing companies to take big write-downs on thinly traded securities even if the underlying assets aren't severely troubled.

Some investors and accountants say the banks' real goal is to mask losses and postpone the pain. With its letters, the SEC is taking a middle course, suggesting the market price may be a poor indicator but companies need to justify using a different guidepost.

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