American Institute of CPAs president and CEO Barry Melancon defended fair value accounting standards at a securities industry conference, but admitted the standards could be improved.
The conference, jointly sponsored by the AICPA and the Financial Management Division of the Securities Industry and Financial Markets Association, included speakers from the accounting profession, the banking industry, the Securities and Exchange Commission and credit ratings agencies.
Melancon discussed the AICPA's involvement in the Emergency Economic Stabilization Act and other legislation, as well as the institute's intention to provide input into the debate on fair value accounting. He noted the AICPA has been "behind the scenes" providing insight to the media and Congress on fair value standards. "Clearly fair value is not the cause" of the financial crisis, he noted, but added, "fair value accounting undoubtedly can be improved."
He said the AICPA "forcefully supports" the independence of the standards-setters. While the institute "broadly supports" FAS 157, the Financial Accounting Standards Board's fair value measurement standard, it also supports the study that the Securities and Exchange Commission has undertaken to evaluate fair value and mark-to-market accounting.
Melancon does not think that the SEC will suspend mark-to-market accounting, despite pressure from the banking industry. He noted that the banks mainly want to make some technical changes in the rules, especially in how they can value their so-called "tier 3" assets.
Pressure has been extending internationally, he noted, with the International Accounting Standards Board recently issuing guidance to clarify fair value standards. However, he noted that there were some small differences between FASB and the IASB in their guidance. "They didn't get to the same place as FASB," he said. But he warned against banks trying to "get into arbitrage between the two sets of standards."
The controversy over fair value accounting has complicated the roadmap for the convergence of U.S. generally accepted accounting principles with International Financial Reporting Standards. While the SEC commissioners have publicly proposed a roadmap for the IFRS transition, Melancon admitted that the economic crisis, the debate over fair value and the presidential elections were delaying the publication of the proposed roadmap in the Federal Register. Nevertheless, he believes that convergence is inevitable. "The train has left the station," he said.
Melancon sees major changes happening in Congress after the election, and noted that the members and chairmen of several key committees are expected to retire or change. Both of the major presidential candidates have "pluses and minuses," he noted. He predicted that House Ways and Means Committee Chairman Charles Rangel, D-N.Y., would remain in charge of the committee, which writes many of the tax laws.
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