Its main events:
A) FAS 157 Fair Value Measurement
FAS 157 took effect after November 15, 2007.
The fair value is "price that would be received to sell the asset or paid to transfer the liability (an exit price), not the price that would be paid to acquire the asset or received to assume the liability (an entry price)".
This is "mark-to-market" accounting.
B) Emergency Economic Stabilization Act of 2008 (EESA)
(we can find detailed EESA from my previous post.)
EESA opens FAS 157 for review through Section 132 and 133.
"Section 132: Authority to suspend mark-to-market accounting"
restates SEC authority to suspend FAS 157
Section 133: Study on Mark-to-Market Accounting
SEC to consult with Fed and Treasury to conduct a study of effects of FAS 157.
C) Study and decision on Section 132, 133
Date: 30 Dec 2008
Outcome: decided to improve, not to suspend mark-to-market accounting
SEC study on mark-to-market accounting
(Note: This long study is a very good read on this subject matter.)
D) A Bloomberg article on FASB Chairman was under pressure by US Chamber of Commerce, American Bankers Association and companies to loosen Mark-to-Market ruling on impaired investment: Bloomberg article
E) FASB Issues Proposals to Improve Guidance on Fair Value Measurements and Impairments
(gave in to the pressure)
Date: 17 Mar 2009
F) US’s Financial Accounting Standards Board (FASB) decision on "mark-to-market" accounting rules
Date: 2 Apr 2009
FSP FAS 157-e, Determining Whether a Market Is Not Active and a Transaction Is Not Distressed
Outcome: easing of mark-to-market accounting
- applied prospectively and that retrospective application would not be permitted
- When: would be effective for interim and annual periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009.
It left to be seen:
1. In the coming reporting season, how much will it "beautify" financial institutions' balance sheets ?
2. What will be the reactions of investors on "improvement" of the financial institutions’ results ? How to judge the actual financial health of the financial institutions ? Or just take the "improved result" as the "actual result" ?