Mark to Market Matter That Much?

One day after a modification to mark-to-market accounting rules, analysts continue to debate whether financial institutions will benefit from being granted more leeway to price troubled assets.

On Thursday, the Financial Accounting Standards Board voted unanimously to alter the definition of an "orderly" transaction to not include forced liquidation or distressed sale, which will allow assets to be valued differently. The changes will be effective for the second quarter of 2009, although first-quarter application will be permitted.

A separate vote to finalize new accounting guidance related to how financial companies write down other-than-temporarily impaired assets was passed 3 to 2. The new guidance for other-than-temporary impairments allows companies to separate the portion of those impairments in the portfolio that is due to credit deterioration vs. noncredit deterioration.

Many financial institutions have long complained about the regulation, FASB statement 157, which was implemented in 2007 to change the definition of fair value -- the measure of the worth of an asset on a company's books -- and the methods used to measure fair value.

The mark-to-market rules have led to assets being priced well below their real valuation to the current market value, making it impossible for banks to purge the toxic assets from their books at anything but deeply discounted prices.

Truth be told, the FASB had little choice but to change the rules as government officials were determined to make the change no matter what. When the FASB Chairman Robert Herz testified on Capitol Hill last month, chairman of the House Financial Services Subcommittee Paul Kanjorski (D., Pa.) told Herz that "if the regulators and standards setters do not act now to improve the standards, then the Congress will have no other option than to act itself."