Financial Lending Notes
June 26, 2009

SEC Mark-to-Market Study Released

In fall 2008, the Securities and Exchange Commission began a study on mark-to-market accounting standards that was mandated by the Emergency Economic Stabilization Act passed by Congress in October.

Consisting of extensive analysis and roundtable discussions with representatives from the accounting, banking, insurance and academic communities, the study concluded on Jan. 2 and a 211-page (plus appendices) report of its findings was released in early February.

The report recommends improvements in, but not suspension of, fair value accounting standards. Recommendations include reconsidering the accounting for impairments and the development of more guidance for determining the fair value of investments in inactive markets.

In general, investors believe that fair value accounting increases financial reporting transparency and facilitates better investment decision-making, the report concluded. In addition, it notes that fair value accounting did not appear to play a meaningful role in last year’s bank failures. Growing numbers of probable credit losses, concerns about asset quality, and eroding lender and investor confidence were the primary culprits, according to the report.

Specific recommendations for improving the application of fair value standards include:

  • Developing additional guidance and other tools for determining fair value when relevant market information is not available.
  • Reducing the number of models utilized for determining and reporting impairments.
  • Reconsidering current restrictions on the ability to record increases in value.

The SEC also recommends that the Financial Accounting Standards Board (FASB) reassess the current impairment accounting methods for financial instruments, including narrowing the number of models under U.S. generally accepted accounting principles (GAAP).

For additional information on how changes in the Mark-to-Market accounting standards will impact your business please contact Patrick A. Tuley, CPA with Porter Keadle Moore LLP, at ptuley@pkm.com.

  

Compliments of:

Porter Keadle Moore, LLP (PKM) is a full service accounting firm based in Atlanta, Georgia. PKM offers audit, tax and systems services to clients throughout the country. The firm focuses its efforts on companies registered with the Securities and Exchange Commission (SEC), community banks, the insurance industry, technology and life sciences companies and the real estate/construction industry.
 

To discuss this article contact Pat Tuley, CPA with Porter Keadle Moore, LLP at ptuley@pkm.com.

Pat has over 23 years of experience in public accounting. He has worked with clients ranging from individuals to international Fortune 50 companies in a variety of tax consulting and compliance areas. He is most active in the real estate and banking industries, serving numerous clients across the Southeast. Pat has led PKM’s tax practice since 2003. Prior to joining PKM he was a partner with KPMG, where he spent 17 years of his professional career.

 

Tim provides accounting and auditing services to financial institutions as well as clients in the construction, service, technology/life sciences and manufacturing/distribution industries. He routinely works with companies registered with the Securities and Exchange Commission; privately-owned companies and S Corporations. He has experience with Initial Public Offerings (IPOs), Mergers and Acquisitions, Sarbanes-Oxley compliance and internal control consulting. You can contact Tim at tmessman@pkm.com.