Volume 3, Issue 4

April 2009

I. Fornelli Tells Lawmakers Fair Value Suspension Would Obscure Financial Realities

CAQ Executive Director Cindy Fornelli was among those testifying before the House Financial Services Committee’s Subcommittee on Capital Markets on fair value accounting last month. During a March 12 hearing, entitled “Mark-to-Market Accounting: Practices and Implications,” Fornelli spoke to the importance to investors of a transparent and accurate reflection of financial assets and warned that without fair value accounting, such transparency would disappear.

CAQ Executive Director Cindy Fornelli told lawmakers on March 12, “Fair value’s application has room for improvement; but as the recent SEC study confirms, loan losses and runs on the banks caused the current financial crisis, not fair value accounting. Therefore, suspending fair value accounting will not fix the problem and, as the SEC noted, could further erode investor confidence.”

“Investor confidence in the reliability and transparency of financial reporting is critical to our financial system’s long-term well being,” said Fornelli in her testimony. “We must pursue only those proposals that do not put that confidence at risk.”

She told lawmakers the CAQ has a two-pronged approach to easing banks’ liquidity concerns: first, ask banking regulators to review capital requirements; and second, improve the application of fair value accounting standards.

Testifying alongside Fornelli was Jeff Mahoney, general counsel of the Council of Institutional Investors (CII). The CAQ has worked closely with CII, an organization representing pension funds, in support of fair value accounting. Other witnesses included:

• James Kroeker, Acting Chief Accountant, U.S. Securities and Exchange Commission
• Robert Herz, Chairman, Financial Accounting Standards Board
• Kevin Bailey, Deputy Comptroller for Regulatory Policy, Office of the Comptroller of the Currency
• Thomas Bailey, Chairman, Pennsylvania Association of Community Bankers, and President and Chief Executive Officer, Brentwood Bank
• Lee Cotton, Past President, Commercial Mortgage Securities Association
• Tanya Beder, Chairman, SBCC Group
• Robert McTeer, Distinguished Fellow, National Center for Policy Analysis
• William Isaac, Chairman, The Secura Group of LECG

II. Fornelli Promotes Fair Value on the Airwaves and in Print

Cindy Fornelli has actively promoted the importance of fair value accounting with print, broadcast and online journalists, including Fox Business News and the Nightly Business Report.

In an interview that aired on the Nightly Business Report on March 12, Fornelli said, “Suspending fair value or mark to market accounting would not solve the problems because you would have a huge loss of confidence in the investor community as to the true value of these assets…”

She appeared on “FOXBusiness.com LIVE” on March 19, telling co-hosts Connell McShane and Jenna Lee, “The Center for Audit Quality supports improving the application of fair value accounting, and indeed FASB heard that message loud and clear at the congressional hearing. … I also think there is another piece of the equation that we should be looking at: can regulatory capital requirements be modified to ease liquidity pressure?”

Participating in a segment on “mark-to-market” accounting on FOX Business.com LIVE, Cindy Fornelli said, “If our markets are going to recover in the long term, investors must have confidence that it is a fair and open system and that they get the information they need.”

Fornelli also authored a March 13 column (“Mark-to-Market Serves Us Well”) for TheStreet.com, an online publication covering the financial industry. In the article, she noted that, “Some points are beyond dispute in the debate over fair value accounting standards. We can all agree that our economy is in crisis and that our financial institutions are under strain. But claims that fair value (or mark-to-market) accounting is the root cause of the current economic climate are misguided.”

III. CAQ Launches New Resource on Auditing in a Changing Economy

The CAQ recently launched a new web resource to guide public company auditors and other capital market stakeholders through the current economic environment.

“Auditing in a Changing Economy” centralizes content relevant to users of financial statements in areas including fair value measurements, internal control over financial reporting, impairment and disclosures.

The resource includes links to CAQ white papers, comment letters, alerts, speeches and other materials useful to stakeholders during these challenging economic times. The CAQ will continue to update “Auditing in a Changing Economy” with relevant resources from regulators and standard-setters as they become available.