Fair Value Accounting

According to Reuters, Mark Olson, chairman of the Public Company Accounting Oversight Board (PCAOB) and a former Federal Reserve Board governor, said that U.S. accounting regulators need to keep examining consequences of fair value accounting, but lawmakers should not get involved. Mr. Olson said fair value accounting, also known as mark-to-market accounting, is difficult to apply in current market conditions when there is no market for some mortgage-related assets:

"We're looking at how fair value accounting is standing up to the stresses of today's economy," Mr. Olson said. "We're looking if there is a need for additional guidance." He said the guidance the PCAOB issued last year on fair value accounting is "still solid," but gaps in auditors' understanding of how the standard should be applied may remain. Accounting regulators such as the U.S. Securities and Exchange Commission and the Financial Accounting Standards Board need to keep discussing the effects of fair value. Late in September, the SEC reminded financial services firms that it was unnecessary to use fire sale prices when evaluating hard to price assets under fair value accounting rules.

Mr. Olson said he is "agnostic" about the validity of fair value but warned against a radical change to the standard. "In times like this, we don't look for major change," he said. Some Republican lawmakers are calling to suspend fair value accounting standards, but Mr. Olson said it is not Congress's place to set accounting standards. "It takes a long time to pass laws, and accounting and auditing standards move very rapidly," he said. "If they're locked into statute, they would be very difficult to adjust."

Looking forward to regulatory reform under a new administration, Mr. Olson said, "Everything's on the table" as far as restructuring. "Every regulator's role will be considered. We've never been in an environment like this."

Mr. Olson said the Fed could get an expanded role because of confidence in the institution and in the measures it has taken to bring more stability to the credit markets. "I think the lender of last resort role has become very dominant," Mr. Olson said. "I don't know what the future role of the Fed will be, but it will be major."

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