OMG, the SEC did something right! They saved mark to market accounting.
The recently departed top accountant for the U.S. Securities and Exchange Commission said on Wednesday he refused to suspend mark-to-market accounting rules last year despite intense political pressure.
Mark-to-market, or fair value, accounting rules require financial companies to value assets based on what they could fetch in a current market transaction. Some bankers and investors have blamed new accounting rules requiring broader use of the standard for exacerbating the financial crisis, saying banks were forced to mark down assets to artificially low prices.
But Conrad Hewitt, who was chief accountant at the U.S. Securities and Exchange Commission until last January, said that despite requests from members of Congress and industry groups, he would not have changed the rules last year.
“I spoke to the chairman (Christopher Cox), and I said I refuse to suspend 157,” Hewitt said at a Pace University accounting panel, referring to the accounting standard known as FAS 157, which formalized rules for fair value accounting.
“I think that mark-to-market does help the investor,” Hewitt continued. “Mark-to-market brought to focus the problems we have had in our financial institutions much faster.”
The issue of how to value distressed assets held by U.S. banks has been one of the toughest challenges in constructing a bank rescue plan, industry sources and lawmakers have told Reuters.
Under the Troubled Asset Relief Program, the U.S. Congress mandated the SEC to complete a study of fair-value accounting.
However, Hewitt said Wednesday the SEC’s recent study of fair value accounting was done as “a compromise,” and that he believes that politics should be kept out of accounting standard setting. The study, released in December, concluded that mark-to-market accounting was not a major factor in 2008 bank failures.
Influential business groups like the Business Roundtable and the American Bankers Association continue to urge the SEC to suspend or significantly alter mark-to-market accounting.
The Financial Accounting Standards Board (FASB), which writes U.S. accounting rules, is planning to issue more guidance on the topic, but has said a significant overhaul is not in the works.
Hewitt said he often asked those who approached him about suspending mark-to-market to come up with a better model.
“I never got an example of how you can improve it,” Hewitt said.
First of all, that’s great. Second of all, wonder why he “departed”. Third of all, does this mean I will see a decline in stupid emails claiming Enron used mark to market accounting to cover fraud?