Accounting & Auditing | Financial Planning | Legislative / Regulatory

Fair value: The scrutiny continues

Value Today's post is brought to you entirely by Twitter.

Really. The two articles I'm about to reference were featured recently in Rick Telberg's Twitter stream. So thanks, Rick!

In spite of an SEC report that validates the practice, it seems the campaign in opposition to fair-value accounting refuses to die.

A capital markets panel under the U.S. House Financial Services Committee is planning to hold a hearing on fair-value (or mark-to-market) accounting rules on March 12, according to Reuters. Among those asked to testify are Financial Accounting Standards Board Chair Robert Herz and the chief accountant of the Securities and Exchange Commission.

The opposition's logic, of course, is that if banks are forced to value their assets at current market values, many banks will be rendered insolvent, which would add yet another layer of misery to our already steaming pile of financial misfortune.

Two personal observations: First, if you're not going to value your assets at what the market says they're worth, how are you going to value them? Any other figure is just vapor. Second, I'm willing to bet the same folks who criticize mark-to-market today would welcome it back whole-heartedly when the market recovers. You can't have it both ways, folks.

Level heads do remain. According to Accountancy Age, Warren Buffett himself has said bluntly that he and the rest of the folks at Berkshire Hathaway "endorse market-to-market accounting."

"We have told you before that our derivative contracts, subject as they are to mark-to-market accounting, will produce wild swings in the earnings we report," Buffett told investors in his annual chairman’s statement to investors. "The ups and downs neither cheer nor bother me."

What's your opinion of fair-value accounting?


Bill Sheridan