In the last of a series of roundtable discussions of mark-to-market accounting before issuing a congressionally mandated study, a panel of accounting experts told the Securities and Exchange Commission about the challenges of valuing assets in a rapidly sinking market.
"The markets are stressed to a point we have not seen in a very long time," said SEC former Chief Accountant Don Nicolaisen. "We could use more disclosure." He suggested that an SEC economist discuss what inputs could be used to create standardized models. Accountants and investors would be able to make comparisons from one company to another. "It gives the market some insight into how those judgments are made," he said. "We need something like that to get the market at least somewhat quieted down. We need some basis of comparison."
James Gilleran, a former director of the Office of Thrift Supervision, argued against going overboard on disclosures. He noted that major financial institutions used to have only about four footnotes in their financial statements.
"I think we have to go through and look back at the disclosures we make," he said. "Now we're going out with 150 or 200 pages of disclosures. Some of the things we are talking about today would increase it by 50. I don't think that's a fair amount of information."
Richard Jones, a partner in Dechert's finance and real estate group, commented on the problems associated with bid-ask transactions. "The bid in my market is artificially reduced because the buyers know the sellers need to sell," he said. "I can sell at 50 cents and meet the obligations of incredibly inquisitive partners but I'm not going to buy at 50 cents because I know [someone] needs to sell." He wants fair value standards to look at more types of inputs.
Jay Hanson, director of accounting at McGladrey & Pullen, noted the difficulty of looking to the future based on past value and trying to predict what declines in real estate value are going to do to a particular asset. "That's hard to do when a CPA is being criticized by the PCAOB," he said. "You go to the lowest number and be fairly conservative because that's what Congress has asked us to do." However, he noted that can be a difficult call when an client's existence depends on a particular value "in order to keep the doors open."
