Fair value guidance may be needed: SEC official

By Rachelle Younglai

WASHINGTON (Reuters) - The U.S. Securities and Exchange Commission may need to issue guidance on "fair value accounting" methods, which are used for the hardest-to-value assets such as mortgage-backed securities, SEC Commissioner Paul Atkins said on Thursday.

Fair value accounting is a way of accounting for assets and liabilities based on how much they are currently worth as opposed to using historical values.

But now that the credit markets have seized up, fair value accounting has been blamed for exacerbating the credit crisis by forcing companies to use complex methods to value assets where there is little trading to identify market prices.

"If you have no value for something because there are no market values to be reflected, then you have to ask whether or not that is truly reflective of what the asset is worth," Atkins told Reuters in an interview.

"I think we need to come out with guidance to help people deal with that situation," he said.

In the past few months, corporate managers and some investors have been questioning the use of fair value accounting methods for hard-to-price asset-backed securities.

Under U.S. accounting rules, assets can be valued based on a simple price quote in an active market. The hardest to value assets are based entirely on management's best estimation derived from mathematical models, also known as "unobservable inputs."

Fair value accounting, also known as "mark-to-market" accounting, often requires companies to use complex mathematical models to come up with values, that some say adds to confusion.