US tweaks ‘fair value’ accounting rules amidst illiquid markets

WASHINGTON, September 30, 2008 (AFP) – US regulators Tuesday offered new guidelines aimed at easing accounting rules blamed by some analysts for worsening the crisis for banks with heavy losses from mortgage securities

The Securities and Exchange Commission made the announcement offering clarification to companies preparing to report their financial results for the third quarter, which ended on Tuesday.

The rules had required banks to recognize the “fair value” of their assets and book losses immediately instead of allowing them to wait for a recovery — in some cases pricing the troubled mortgage assets as worthless.

The rule called FAS 157 is an update of the so-called “mark-to-market” standard requiring accounting for assets at fair-market prices.

The new SEC guidelines say companies must exercise “judgment” in cases where companies are holding securities with no liquid market.

“Determining whether impairment is other-than-temporary is a matter that often requires the exercise of reasonable judgment based upon the specific facts and circumstances of each investment,” the SEC said. “This includes an assessment of the nature of the underlying investment.”

The American Bankers Association