The History of Mark-To-Market Accounting (cont.)

The use of fair value measurement expanded significantly in 1975, with the issuance of authoritative accounting literature that mandated its use in certain circumstances due to concerns about the appropriate measurement attribute for equity securities.

Prior to 1975, there was a lack of consistency in accounting literature, which resulted in diversity in accounting practice, specifically with respect to marketable securities. Accounting practices included carrying such securities at cost, at market, and, in some cases, a combination of both measurements for different classes of securities.

During 1973 and 1974, there were substantial declines in the market values of many securities. These declines, in many cases, were not reflected in financial reports. When the market recovered in 1975, the accounting guidance was unclear on whether securities previously written down could be written up to previous carrying amounts. As a result of these issues, the FASB issued SFAS No. 12, Accounting for Certain Marketable Securities, in December 1975, which required that all marketable equity securities be recorded at the lower-of-cost-or-fair-value. Debt securities continued to be accounted for at amortized cost.

Comments

[neekSkelveFet]

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[nyc accountant]

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