WASHINGTON, Nov 21 (Reuters) - A U.S. accounting rule blamed for contributing to the global financial crisis should not be replaced, accountants and others said on Friday, suggesting instead that banks reveal more information about how they value their hard-to-price assets.
The rule, known as fair value accounting or FAS 157, requires assets to be valued at market prices and some banks and policymakers have blamed it for billions of dollars in writedowns for big financial institutions.
At a public meeting held to gather information on whether the rule should be changed or replaced, accountants and others generally agreed that modifications were needed.
'I believe fair value is an appropriate model,' Jay Hanson, national director of accounting at McGladrey & Pullen, said at the Securities and Exchange Commission's public meeting.
Kevin Spataro, vice president of accounting policy and research at Allstate Corp, said some amendments were needed for when markets are illiquid.
As part of the $700 billion bailout, the SEC is required to produce a study analyzing the effects of fair value accounting rules on financial firms' balance sheets and examining alternative accounting standards.
A number of panelists said more disclosure was needed around how banks valued assets when there is no market for a security.
Under FAS 157, assets can be valued based on a simple price quote in an active market. The hard-to-price assets rely on management's best estimate derived from computer models.
'Maybe more information is needed in the valuation process... so users can assess whether it's a good number or not,' said Wayne Landsman, professor of accounting at the Kenan-Flagler Business School, the University of North Carolina. Landsman suggested more details on where the 'numbers come from.'
Donald Nicolaisen, the SEC's former chief accountant, said 'You do need enough information in the market place so the market can absorb, digest and compare' companies.
Nicolaisen, who serves on a number of boards including Morgan Stanley, said there are ways to encourage disclosures. 'They don't have to go in the footnotes, they don't have to go in elaborate write-ups, they can appear on websites,' he said.
Dane Mott, a senior equity analyst at JP Morgan covering U.S. accounting and valuation, said additional details should be included in regulatory filings and said it creates complexity if you expect investors to know it's on a web site.
James Gilleran, former Office of Thrift Supervision director, argued against increasing disclosure just for disclosure purposes. 'I don't think that is a fair disclosure of information,' he said.
The SEC is required to submit the study by early January.
(Reporting by Rachelle Younglai, editing by Leslie Gevirtz) Keywords: SEC/ACCOUNTING (rachelle.younglai@thomsonreuters.com; +1 202 898 8411) COPYRIGHT Copyright Thomson Reuters 2008. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
The rule, known as fair value accounting or FAS 157, requires assets to be valued at market prices and some banks and policymakers have blamed it for billions of dollars in writedowns for big financial institutions.
At a public meeting held to gather information on whether the rule should be changed or replaced, accountants and others generally agreed that modifications were needed.
'I believe fair value is an appropriate model,' Jay Hanson, national director of accounting at McGladrey & Pullen, said at the Securities and Exchange Commission's public meeting.
Kevin Spataro, vice president of accounting policy and research at Allstate Corp, said some amendments were needed for when markets are illiquid.
As part of the $700 billion bailout, the SEC is required to produce a study analyzing the effects of fair value accounting rules on financial firms' balance sheets and examining alternative accounting standards.
A number of panelists said more disclosure was needed around how banks valued assets when there is no market for a security.
Under FAS 157, assets can be valued based on a simple price quote in an active market. The hard-to-price assets rely on management's best estimate derived from computer models.
'Maybe more information is needed in the valuation process... so users can assess whether it's a good number or not,' said Wayne Landsman, professor of accounting at the Kenan-Flagler Business School, the University of North Carolina. Landsman suggested more details on where the 'numbers come from.'
Donald Nicolaisen, the SEC's former chief accountant, said 'You do need enough information in the market place so the market can absorb, digest and compare' companies.
Nicolaisen, who serves on a number of boards including Morgan Stanley, said there are ways to encourage disclosures. 'They don't have to go in the footnotes, they don't have to go in elaborate write-ups, they can appear on websites,' he said.
Dane Mott, a senior equity analyst at JP Morgan covering U.S. accounting and valuation, said additional details should be included in regulatory filings and said it creates complexity if you expect investors to know it's on a web site.
James Gilleran, former Office of Thrift Supervision director, argued against increasing disclosure just for disclosure purposes. 'I don't think that is a fair disclosure of information,' he said.
The SEC is required to submit the study by early January.
(Reporting by Rachelle Younglai, editing by Leslie Gevirtz) Keywords: SEC/ACCOUNTING (rachelle.younglai@thomsonreuters.com; +1 202 898 8411) COPYRIGHT Copyright Thomson Reuters 2008. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.