Corporate Governance

The End of Mark-To-Market

By Fei-Lu Qian

In light of the current financial crisis, the passage of the Emergency Economic Stabilization Act of 2008 will create a real possibility that the SEC will suspend mark-to-market accounting or ?fair value? accounting. However, the Center for Audit Quality (?CAQ?), Council of Institutional Investors and the CFA Institute, representing the country?s public company auditors, institution investors and chartered financial analysts have strongly come out to oppose any suspension and calling it ?unnecessary and counterproductive.?

In a letter to Congress and top federal officials, the CAQ argued that suspending mark-to-market accounting is not in the best interest of investors because the end result would be less transparency and decrease investor confidence in capital markets. In short, ?suspending mark-to-market accounting would throw financial reporting back to a time of less comparability, less consistency and less transparency.? Moreover, in arguing against a suspension, Cynthia M. Fornelli, CAQ?s Executive Director said in the letter:

The principles of mark-to-market accounting are rooted in the fundamental value of transparency and are central to informed market decision and efficient allocation of capital. In our view, investor confidence would be undermined by efforts designed to mask the actual value of financial assets at a given point.

The CAQ correctly notes that mark-to-market accounting did not create the current financial crisis, but instead brought the seriousness of the crisis to light and into the eyes of the public. A suspension of it ?would not help solve our economic difficulties.?

Full post as published by PomTalk on October 03, 2008 (boomark / email).