April 9, 2009 / 11:07 PM / in 9 years

UPDATE 1-FASB issues guidance on mark-to-market

NEW YORK, April 9 (Reuters) - The Financial Accounting Standards Board, which sets U.S. accounting rules, issued on Thursday formal guidance that will allow companies more flexibility in their use of mark-to-market accounting.

The guidance comes after the board voted in favor of the changes last week, under pressure from Congress.

The move is expected to improve earnings and capital levels at banks. Lawmakers, banks and other supporters of the changes had argued that the earlier version of the rules forced companies to price assets at fire-sale prices, creating a downward spiral and billions of dollars in write-downs.

In the board’s formal guidance, FASB said the changes would be effective for the second quarter period for most U.S. companies, but early adoption would be permitted for the first quarter.

FASB said on Thursday that its new guidance explains how companies should use mark-to-market when a market is not active, and says there is a need to use judgment in ascertaining when a formerly active market has become inactive.

The board, as expected, will also require more disclosures by companies about expected cash flows, credit losses and aging of securities with unrealized losses, in deciding how to take write-downs on assets that have fallen sharply in value.

“Virtually all of the investors providing input expressed the need for greater transparency by banks,” FASB Chairman Robert Herz said in a statement on Thursday. “Taken together, these three new documents require significantly expanded and enhanced disclosures.”

Some investors and some former regulators have expressed concerns about the changes, saying that more flexibility with the rules could let big banks hide the real value of their troubled assets. (Reporting by Emily Chasan; Editing by Tim Dobbyn)

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