On December 30, 2008, the U.S. Securities and Exchange Commission (SEC) delivered its report to Congress, mandated by the Emergency Economic Stabilization Act of 2008, on fair value accounting standards, including the mark-to-market guidance set forth in Statement of Financial Accounting Standards No. 157 (SFAS 157). The SEC report recommends improving, rather than suspending, fair value accounting standards.
The report asserts that bank failures in 2008 were likely caused by credit losses, concerns about asset quality, and declining lender and investor confidence, rather than fair value accounting. Instead of suspending SFAS 157, as some who attended the SEC’s three public roundtables held in July, October and November 2008 had advocated, the SEC makes eight recommendations to improve the application of fair value accounting standards, including the development of additional guidance on how fair value should be determined in illiquid, inactive markets. The SEC report also calls on the Financial Accounting Standards Board to examine the impact of liquidity in the measurement of fair value and whether additional application and disclosure guidance is necessary, as well as reassessing the current impairment accounting models for financial instruments.