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The SEC and the FASB issued clarifications to the current rules on fair value accounting for banks and said the FASB is preparing to propose additional interpretative guidance on fair value measurement under U.S. GAAP later this week.
The current environment has made questions surrounding the determination of fair value particularly challenging for preparers, auditors, and users of financial information, regulators say, adding that there are a number of practice issues where there is a need for immediate additional guidance.
The clarification responds to pressure from the banking industry to suspend the so-called ‘mark-to-market’ accounting rules that require banks to value their holdings at current market prices.
It states that internal assumptions can be used to measure fair value when relevant market evidence does not exist. These management estimates are acceptable when they incorporate current market participant expectations of future cash flows, and include appropriate risk premiums.