Fair Value's ‘How’ Meets ‘When’

The Complications of Applying Mark-to-Market Accounting in an Inactive Market

Kang Cheng, PhD, CPA

In the midst of the “the worst financial crisis since the 1930s,” Federal Reserve Chairman Ben Bernanke laid out his vision for a total overhaul of the nation's financial system at a March 10, 2009, meeting with the Council on Foreign Relations. One issue explicitly addressed in his speech is that accounting standards need to be revised so that they don't exacerbate the downward spiral in the current crisis. On March 12, FASB Chairman Robert H. Herz had a hearing with congressional lawmakers who openly pressed FASB for a quick reaction to the market. On March 17, FASB answered with two exposure drafts. At the core of this controversy are the accounting rules for fair value measurement, also known as mark-to-market accounting.