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Fair Value Accounting Debate Continues in US House of Representatives

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The ongoing debate about mark-to-market accounting has taken another turn, as the chairman of the US House of Representatives Financial Services Committee, Barney Frank, suggested earlier this week that the industry needs more flexibility in the area of valuations.

He told the meeting that he currently has no plans to legislate accounting practices or to scrap the mark-to-market rule, which forces financial companies to value certain assets at their current market prices. However, Frank did say that he wishes to make it easier for companies to apply the rule during the financial crisis by adding modifications to the mark-to-market requirements.

He is particularly concerned with aspects of the accounting rules that trigger automatic consequences when institutions mark the value of their assets in line with market conditions, which currently often reduce their value. Discussions about what these particular “modification” may involve are ongoing.

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