The Center for Audit Quality (CAQ) is living up to its name, as it has issued three white papers in response to the so-called “liquidity crisis” that began in the subprime mortgage-related markets and, according to CAQ, has spread to other corners of the credit markets with “a potentially pervasive impact on public companies generally with respect to investments held.” 

The reasoning is, investors have pulled back from investments in high-yield “junk” bonds, debt issued in leveraged buyout transactions, and even short-term asset-backed commercial paper, and that could continue for an extended period. The three white papers are entitled,  “Measurements of Fair Value in Illiquid (or Less Liquid) Markets,” “Consolidation of Commercial Paper Conduits,” and “Accounting for Underwriting and Loan Commitments.”

It is important to note the process followed by the CAQ in developing these white papers.  It showed early drafts to various organizations (American Bankers Association, Securities Industry and Financial Markets Association, Committee on Bank Accounting and Reporting, Financial Executives International, Investment Company Institute, American Securitization Forum, The Clearing House, Financial Services Roundtable, and the Mortgage Bankers Association) for comments, and then showed the white papers to the SEC, FASB, PCAOB, and various banking regulatory agencies.
What is so nice about these white papers is that they deal with the accounting issues that many auditors now have to deal with. Auditors are able to find in one place how the relevant accounting standards apply, and perhaps more importantly know that the regulatory organizations and agencies have seen these white papers and don’t dispute the guidance that they offer. It has to be very helpful for an auditor to have this guidance as the credit market continues to be significantly impacted.

The three white papers may be accessed

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