FASB Chairman Testifies on Mark-to-market Accounting

Robert H. Herz, chairman of the Financial Accounting Standards Board (FASB), testified about mark-to-market accounting today (12 March 2009) before the US House of Representatives Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises. Herz appeared at a hearing convened by Congressman and Committee Chairman Paul E. Kanjorski (D-PA) on ‘Mark-to-Market Accounting: Practices and Implications’.

“Many investors have made it clear that, in their view, fair value accounting allows companies to report amounts that are more relevant, timely, and comparable than amounts that would be reported under alternative accounting approaches, even during extreme market conditions,” said Herz.

Herz underscored the importance of neutral, independent standard setting to capital market investors, and noted that after gathering extensive input about fair value from a diversity of capital market participants, the prevailing view urged the FASB not to suspend or weaken mark-to-market accounting rules. “While bending the rules to favour a particular outcome may seem attractive to some in the short-run, in the long-run, a biased accounting standard is harmful to investors, creditors and the US economy,” said Herz.

Addressing misconceptions that mark-to-market is a broadly applied rule, Herz explained that the phrase ‘mark-to-market’ accounting generally only applies to trading accounts and derivatives that don’t qualify as hedges. Additionally, Herz clarified that the use of fair value for measurement depends on both the nature of a financial asset and its intended use by an institution. Herz added that current financial reporting in the US and elsewhere across the world included the use of both fair value and historical cost.


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