Financial Accounting Standards Board, FASB Agrees To Ease Mark to Market Rules
It’s a victory for banks and potential problems for investors. Caving to pressure from the banking industry, the Financial Accounting Standards Board (FASB) has approved a measure to ease fair value, or mark to market, accounting rules. The rule change gives companies even more leeway in assigning value to their investments, allowing them to place a value on what the assets would go for in an orderly sale versus a forced or distressed sale.
FASB’s new guidelines will take effect in the current quarter.
As reported April 2 by Bloomberg, accounting analysts say the revisions could boost banks’ net income by 20% or more.
Mark to market accounting is a methodology that requires financial institutions and other companies to assign a value to financial products based on current market prices. The process has become increasingly difficult in recent months, however, because markets for certain illiquid investments like mortgage securities and other exotic instruments have frozen up.
Meanwhile, investor advocates contend the new guidance approved by FASB on April 2 will lessen the transparency of a company’s true financial health and ultimately create even more confusion for investors.
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