Query by : FASB meeting March 12, 2009 what are they talking about?
can anybody tell me what the FASB meeting on March 12, 2009 was about I study the entire write-up and cant understand any of it. Please support
Very best answer:
Answer by Bonimba
It was about “mark to industry” accounting, or the practice to worth assets that are not traded on markets in a way that is commensurate with what the markets would worth them. In other words, if the assets you own are not traded on any marketplace, then you have to use best judgment to “guess” what they ought to be worth. You can think about that in the course of the financial meltdown, when firms and banks had to liquidate assets at any cost, having to mark similar assets at these levels would have resulted in an endless downward spiral. Hence the monetary crisis, hence some relaxation of the guidelines that helped the stock industry choose up once more.
FASB Chairman Robert H. Herz Testifies on Mark-to-Market Accounting
Norwalk, CT, March 12, 2009—Robert H. Herz, Chairman of the Financial Accounting Standards Board (FASB), testified about mark to industry accounting today just before the U.S. Residence 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-Marketplace Accounting: Practices and Implications.”
“Many investors have produced it clear that, in their view, fair value accounting permits organizations to report amounts that are much more relevant, timely, and comparable than amounts that would be reported beneath option accounting approaches, even in the course of intense market place circumstances,” mentioned Chairman Herz.
Herz underscored the significance of neutral, independent standard setting to capital market investors, and noted that after gathering substantial input about fair value from a diversity of capital market place participants, the prevailing view urged the FASB not to suspend or weaken mark to market place accounting rules. “While bending the guidelines to favor a distinct outcome may seem appealing to some in the quick run, in the lengthy run, a biased accounting normal is dangerous to investors, creditors and the U.S. economy,” mentioned Herz.
Addressing misconceptions that mark to market is a broadly applied rule, Herz explained that so named “mark to market” accounting normally only applies to trading accounts and derivatives that don’t qualify as hedges. Furthermore, Herz clarified that the use of fair value for measurement depends on each the nature of a financial asset and its intended use by an institution. Herz added that current economic reporting in the U.S. and elsewhere across the planet included the use of both fair value and historical cost.
In response to the current difficult market place conditions and feedback from a wide array of investors and constituents—including the SEC—the FASB lately announced projects intended to boost the application guidance used to establish fair values as nicely as enhancing disclosures in financial reports. (http://www.fasb.org/news/nr021809.shtml). Earlier in the crisis, the FASB and SEC jointly issued new guidance on the application of fair value in illiquid markets. (http://www.fasb.org/news/2008-FairValue.pdf).
“The truth that fair worth measures have been challenging to decide for some illiquid instruments is not a trigger of existing difficulties but rather a symptom of the several difficulties that have contributed to the international crisis—including lax and fraudulent lending, excess leverage, the creation of complex and risky investments through securitization and derivatives, the global distribution of such investments across quickly expanding unregulated and opaque markets lacking a appropriate infrastructure for clearing mechanisms and price discovery, faulty ratings, and the absence of appropriate risk management and valuation processes at numerous financial institutions,” Herz stated.
Given the challenging financial atmosphere, Herz underscored the FASB’s commitment to continue operating actively with regulators and constituents to provide guidance on reporting problems emanating from the monetary crisis and continue its project with the International Accounting Requirements Board (IASB) to improve, simplify and converge the accounting standards for financial instruments.
The full text of Chairman Herz’s testimony is positioned at www.fasb.org
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