FASB Meets Today on Fair Value

The Financial Accounting Standards Board meets today to discuss fair-value accounting proposals. I’m torn about whether or not to support them.

The two proposals boil down to this (courtesy of CUNA):

* Proposed FSP FAS 157-e, called “Determining Whether a Market Is Not Active and a Transaction Is Not Distressed,” would provide guidelines on how to best apply FASB Statement No. 157, Fair Value Measurements, in a market that is not active.

* Proposed FSP FAS 115-a, FAS 124-a, and EITF 99-20-b, “Recognition and Presentation of Other-Than-Temporary Impairments(OTTI),” is intended to provide greater clarity and consistency in accounting for and presenting impairment losses on securities.

There’s a bit of sweeping-it-all-under-the-rug about fair-value accounting. Look, I understand the perspective of financial institutions, but do we really want an accounting system that essentially fudges valuation? We’ve been down this path before. It was called gain-on-sale accounting and it did not produce a pretty result.