SEC Report: Mark-To-Market Accounting Here To Stay
A growing debate among financial institutions has been decided once and for all. Following the collapse of some 25 banks in 2008, along with a financial breakdown on Wall Street, many bankers called upon Congress to suspend mark-to-market accounting. Critics of the accounting rule say its suspension would give financial institutions more leeway to determine the value of hard-to-sell assets in illiquid markets. On the flip side, proponents contend fair-value accounting increases financial reporting transparency and facilitates better investment decision-making.
On Dec. 31, 2008, the Securities and Exchange Commission (SEC) issued its opinion in a 259-page report, stating that mark-to-market accounting will remain in place. The report went on to say that the accounting rule did not play any meaningful role in the collapse of 25 banks last year.
Mark-to-market accounting requires companies and financial institutions to value their assets based on current market values. For institutions that own certain assets like mortgage-backed securities, the practice can wreak havoc on their bottom line when the assets’ values decrease.
The SEC report did call for some changes to mark-to-market accounting, including a standardization process for dealing with impaired assets and issuing more guidance on how to determine asset values when markets are inactive.
The SEC created its report, SEC Report to Congress on Mark-to-Market Accounting, at the request of Congress. In October, following the passage of a $800 billion bailout for Wall Street, lawmakers mandated that the SEC explore the impact of mark-to-market accounting on the recent financial troubles of banks and lenders.
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