No more mark-to-market guidance: PCAOB

WASHINGTON Fri May 1, 2009 6:28pm EDT

WASHINGTON (Reuters) - The chairman of the U.S. audit watchdog agency said on Friday it had no plans to issue further guidance on new market-to-market accounting rules even though the business community has asked for it.

"We don't have anything planned for additional guidance," Mark Olson, chairman of the Public Company Accounting Oversight Board, said at the Reuters Global Financial Regulation Summit.

Early in April, U.S. accounting rulemakers made changes to allow companies more flexibility in their use of the mark-to-market accounting rule, which has been blamed for forcing banks to record billions of dollars in asset write-downs.

Business groups have said the PCAOB needs to be aligned with the accounting rulemaker, the Financial Accounting Standards Board, so that companies are not afraid to use the new accounting rules.

Mark-to-market requires assets to be valued at what they would fetch in a current market transaction. If there is little demand for an asset, as is the case for many assets linked to mortgages, management is allowed to use its best estimate based on models to value the securities.

But even though federal regulators and FASB have repeatedly said that companies do not have to use fire-sale prices when valuing their assets, companies have been fearful of using models and other assumptions to price their assets.

The so-called exit price in an inactive market is often an artificially low price, critics say.

Olson said company auditors are required to "come with a certain amount of professional skepticism."

"The auditor's responsibility is to say, 'How carefully have you looked at underlying assumptions?'" he noted.

Olson said some audit firms have been very thorough, while others have not. "There have been instances where we have expected more rigor in how they have challenged the underling assumptions," he said.

Industry sources say auditors fear being sued by investors and prefer that banks use a market price, or the exit price, regardless of what FASB says about using models in illiquid markets.

The PCAOB did provide guidance after FASB issued its mark-to-market guidelines but it was more of a general reminder.

Business groups such as the U.S. Chamber of Commerce and the Financial Services Roundtable contend that the guidance needs to be more specific.

"We need specific guidance to eliminate the hesitancy by auditors to apply mark-to-market," said Scott Talbott, senior vice president of government affairs at the Roundtable, which represents the largest financial services firms.

Olson said the PCAOB would only consider additional guidance "if there were changes in the marketplace and where we thought it was appropriate, we would undoubtedly do it again."

(For summit blog: blogs.reuters.com/summits/)

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