US watchdog urges standard setters to tighten up the way impairments are calculated, despite approving fair value accounting rules
The US markets watchdog has given a tacit seal of approval to fair value accounting rules, but also urged standard setters to tighten up on the way impairments are calculated.
As part of the Emergency Economic Stabilization Act of 2008 the legislation which aims to pump $700bn into the US economy the Securities and Exchange Commission has reviewed the controversial accounting rule, which requires companies to price assets such as derivatives according to their current market values.
The SEC said: ‘Fair value accounting did not appear to play a meaningful role in the bank failures that occurred in 2008. Rather, the report [of the SEC review of fair value accounting] indicated that bank failures in the US appeared to be the result of growing probable credit losses, concerns about asset quality, and in certain cases, eroding lender and investor confidence.’
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