FASB Moves Toward Giving Banks More Flexibility on Fair-Value

*this is a joke. I thought the market determined fair value? And expected cash flows from assets that are worthless....

By Ian Katz
March 16 (Bloomberg) -- The Financial Accounting Standards Board, pressured by lawmakers to change the fair-value rule blamed for worsening the financial crisis, proposed permitting companies to use “significant judgment” in valuing assets.

Companies would be able to apply the revised rule to their first-quarter financial statements, FASB Chairman Robert Herz said today during a meeting at the U.S. accounting rulemaker’s Norwalk, Connecticut, headquarters. The board is set to vote on the proposal April 2, after a 15-day public comment period.

Fair-value, also known as mark-to-market accounting, requires companies to set values on most securities every quarter based on market prices. Wells Fargo & Co. and other companies argue the rule doesn’t make sense when trading has dried up because it forces banks to write down assets to fire- sale prices.

“Mark-to-market is fundamentally not about a quote on a screen,” Wells Fargo Chairman Richard Kovacevich said March 13 in a speech at Stanford University in California. “It should always be about expected cash flows.”

Most financial assets are not valued using fair-value. For example, General Electric Co. told investors this month that 2 percent of the assets of its GE Capital Corp. finance arm are valued based on market prices.