In response to urgent requests from the banking industry, the Securities and Exchange Commission’s Chief Accountant and the staff of the Financial Accounting Standards Board issued a press release on September 30 to provide “immediate clarifications” on the fair value measurement guidance in FASB Statement No. 157, Fair Value Measurements (Statement 157) in the current environment.

The FASB’s release of a follow-up proposal on October 3 with an October 9 comment deadline reinforced the urgency of the issues addressed in the clarifications.

The “fair value” issue also is addressed in the Emergency Economic Stabilization Act signed by President Bush on October 3. Section 132 of the bill made clear that the Securities and Exchange Commission has authority to suspend the application of Statement Number 157 if “the SEC determines that it is in the public interest and protects investors.” The bill also requires the SEC, in consultation with the Federal Reserve and the Treasury, to conduct a study on mark-to-market accounting standards.

On October 7, the SEC announced additional details about the study, which must be completed by January 2, 2009. SEC said the study will focus on:

• The effects of such accounting standards on a financial institution’s balance sheet;
• The impacts of such accounting on bank failures in 2008;
• The impact of such standards on the quality of information available to investors;
• The process used by the FASB in developing accounting standards;
• The advisability and feasibility of modifications to such standards; and
• Alternative accounting standards to those provided in FASB Statement 157.