The Securities and Exchange Commission has issued an addendum to an earlier letter it has sent to the CFOs of some public companies asking them to provide additional information about their fair value measurements, including credit risks and broker quotes.

The new letter, which the SEC sent Sept. 16, supplements a letter the commission sent back in March that identified various disclosure issues that CFOs should consider when preparing the Management's Discussion and Analysis section of their 10-Q quarterly reports. The additional items come in response to suggestions the SEC received at its recent public roundtables, but others seem to be in response to the expanding credit crisis. The March letter primarily went to the CFOs of financial institutions, but according to the Center for Audit Quality, the SEC has indicated the new letter is going to a wider variety of organizations.

Among the additional items, the SEC now wants CFOs to consider disclosing "the significant judgments you made in classifying a particular financial instrument in the fair value hierarchy." The SEC would like to get an explanation of how CFOs are incorporating and considering credit risk in their valuation of assets or liabilities, whether under SFAS 159 or another applicable standard. The commission wants to know how credit risk affected the valuation of derivative liabilities, and how counterparty credit risk affected the valuation of derivative assets, along with the resulting gain or loss.

The SEC also suggests that CFOs may want to discuss the implications of items they elect to carry at fair value and the items they are required to carry at fair value, such as derivative instruments accounted for under SFAS 133. They could include the criteria used to determine whether the market for a financial instrument is active or inactive — or, in other words, illiquid — and which financial instruments are affected by the lack of market liquidity.

If CFOs disclose that they are using brokers or pricing services to help them determine fair value, they should explain how the information is obtained. That may include the nature and amount of assets valued using broker quotes or prices obtained from pricing services. If the companies obtained multiple quotes or prices, they should explain how they determined the ultimate value used in their financial statements, and how and why they adjusted the quotes or prices.

In separate news, SEC Chairman Christopher Cox (pictured) came under fire from Republican presidential candidate Sen. John McCain, R-Ariz., for his regulation of the financial markets and problems such as short selling, which he said had turned "our markets into a casino."

 "The chairman of the SEC serves at the appointment of the president and, in my view, has betrayed the public's trust," said McCain at a campaign rally in Cedar Rapids, Iowa. "If I were president today, I would fire him."

White House spokeswoman Dana Perino said Cox continues to have President Bush's confidence. Cox's term as SEC chairman ends in June 2009.

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