Additional Materials

• SEC Report to Congress on Mark-to-Market Accounting

1. the effects of such accounting standards on a financial institution's balance sheet;
2. the impacts of such accounting on bank failures in 2008;
3. the impact of such standards on the quality of financial information available to investors;
4. the process used by the Financial Accounting Standards Board in developing accounting standards;
5. the advisability and feasibility of modifications to such standards; and
6. alternative accounting standards to those provided in such Statement Number 157.

Among key findings, the report notes that investors generally believe fair value accounting increases financial reporting transparency and facilitates better investment decision-making. The report also observes that fair value accounting did not appear to play a meaningful role in the bank failures that occurred in 2008. Rather, the report indicated that bank failures in the U.S. appeared to be the result of growing probable credit losses, concerns about asset quality, and in certain cases, eroding lender and investor confidence.

"The Office of the Chief Accountant and the Division of Corporation Finance, in consultation with the Department of the Treasury and the Federal Reserve, have produced a valuable study of many of the critical issues surrounding the use of fair value accounting in the extraordinary market conditions of the past year," said SEC Chairman Christopher Cox. "The study is the culmination of several months of extensive analysis, public roundtables and consultations with investor groups, accounting firms, banks, insurance companies, think tanks, and academics. It will be a useful source of information and guidance not only to policymakers in Congress but also to the independent standard-setters as they continue their work on these important issues. Deputy Chief Accountant James Kroeker, who directed the study, and the staff of the Office of the Chief Accountant and the Division of Corporation Finance deserve particular commendation for their work in producing this comprehensive study before the January 2 deadline set by Congress."

The Emergency Economic Stabilization Act of 2008 directed the SEC, in consultation with the Board of Governors of the Federal Reserve System and the Secretary of the Treasury, to study mark-to-market accounting standards as provided by the FASB Statement of Financial Accounting Standards No. 157, Fair Value Measurements. The Act, which was signed into law on Oct. 3, required that the study be completed within 90 days.

While the report does not recommend suspending existing fair value standards, it makes eight recommendations to improve their application, including:

• Development of additional guidance and other tools for determining fair value when relevant market information is not available in illiquid or inactive markets, including consideration of the need for guidance to assist companies and auditors in addressing:
  • How to determine when markets become inactive and whether a transaction or group of transactions are forced or distressed
  • How the impact of a change in credit risk on the value of an asset or liability should be estimated
  • When should observable market information be supplemented with and/or reliance placed on unobservable information in the form of management estimates
  • How to confirm that assumptions utilized are those that would be used by market participants and not just a specific entity
• Enhancement of existing disclosure and presentation requirements related to the effect of fair value in the financial statements.
• Educational efforts, including those to reinforce the need for management judgment in the determination of fair value estimates.
• Examination by the FASB of the impact of liquidity in the measurement of fair value, including whether additional application and/or disclosure guidance is warranted.
• Assessment by the FASB of whether the incorporation of credit risk in the measurement of liabilities provides useful information to investors, including whether sufficient transparency is provided currently in practice.

The report also recommends that FASB reassess current impairment accounting models for financial instruments, including consideration of narrowing the number of models under U.S. GAAP. The report finds that under existing accounting requirements, information about impairments is calculated, recognized and reported on basis that often differs by asset type. The report recommends improvements, including: reducing the number of models utilized for determining and reporting impairments, considering whether the utility of information available to investors would be improved by providing additional information about whether current declines in value are consistent with management expectations of the underlying credit quality, and reconsidering current restrictions on the ability to record increases in value (when market prices recover).

In conducting the study, data was obtained and analyzed from a broad-based population that included a cross-section of financial institutions. In addition to empirical analysis, the SEC staff obtained valuable input from a broad cross section of market participants through a public comment letter process and by hosting a series of three public roundtables to obtain a wide range of views and perspective from all parties.

http://www.sec.gov/news/press/2008/2008-307.htm

FOR IMMEDIATE RELEASE 2008-271

Washington, D.C., Nov. 14, 2008 — The Securities and Exchange Commission announced today that on Nov. 21, 2008, at 9:30 a.m., ET, it will host the second of two roundtables on "mark-to-market" accounting and current market conditions.

This roundtable, along with the previous roundtable hosted on Oct. 21, 2008, will provide input to the SEC as part of a Congressionally mandated study pursuant to the Emergency Economic Stabilization Act of 2008.

This roundtable will consist of a single panel, which will focus on potential improvements to the current accounting model and implications of possible changes.

The panel will include investors, accountants, regulators, business leaders, and other interested parties. Additionally, representatives from the U.S Department of Treasury, Federal Reserve Board, Financial Accounting Standards Board (FASB), International Accounting Standards Board (IASB), and Public Company Accounting Oversight Board (PCAOB) will be present as observers.

The roundtable will be held in the auditorium at the SEC's headquarters at 100 F Street, NE, in Washington, D.C. A final agenda including a list of participants and moderators will be announced at a future date. The roundtable will be open to the public with seating on a first-come, first-served basis. The roundtable also will be webcast on the SEC Web site.

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http://www.sec.gov/news/press/2008/2008-271.htm