Accounting firms urge SEC to keep fair value rules

The chief executives of the Big Four accounting firms met with the head of the US Securities and Exchange Commission (SEC) on Friday to discuss their opposition to suspending fair value accounting rules, said sources briefed on the meeting.

The meeting with SEC Chairman Christopher Cox occurred just after the US House of Representatives approved a $700 billion (Dh2.26 trillion) financial industry bailout plan that included a provision giving the SEC explicit power to suspend fair value accounting. President George W Bush quickly signed the bill into law. The Big Four executives told Cox that dropping the accounting rule would negatively impact their businesses, one source said, speaking on condition of anonymity.

Fair value, or mark-to-market, accounting has been maligned by the financial industry for forcing banks and others to post stunning write-downs as markets for their mortgage-related securities dried up. The SEC declined comment.

Last week, the agency issued a clarification of the fair value accounting rules, telling banks they do not have to use fire-sale prices when evaluating their hard-to-price assets.

Some members of Congress have pushed the SEC to go further. A bipartisan group of more than 60 lawmakers asked the SEC to help the ailing financial sector by suspending the fair value accounting rule. The bailout signed into law is designed to help banks shed soured assets, many of them related to home loans. It also instructs the SEC to study the fair value accounting standard's effects on the balance sheets of financial institutions and the role it may have played in bank failures this year.

Fair value requires firms to value assets based on what they could fetch in a market transaction – a requirement favoured by most investors and accountants to give a true picture of companies' financial statements.

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