On November 21, 2008, the SEC hosted its second roundtable discussion on mark-to-market accounting, addressing generally the challenges market participants face in applying fair value accounting against the backdrop of the present market. The SEC hosted its first roundtable on October 29, 2008, focused primarily on fair value as applied by financial institutions. Pursuant to the Emergency Economic Stabilization Act of 2008 (EESA), the SEC is required to conduct a study on mark-to-market accounting by financial institutions, in close consultation with Treasury and the Federal Reserve. The roundtables are intended by the SEC to gather input from market stakeholders to inform the SEC's study.

In his opening remarks, Chairman Cox noted that the roundtable discussions serve as an important reminder to the investment community that financial data drives market activity and thus needs to be both reliable and transparent. Section 132 of EESA, grants the SEC the authority “to suspend, by rule, regulation, or order” the application of FAS 157 for any issuer if it is in the SEC’s determination that it is necessary. Two weeks ago, on the eve of the G-20 Summit hosted in Washington, the Chairmen of FAF and IASC, the respective oversight bodies of the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB), issued letters to the G-20 leaders cautioning against political interference in the accounting standard-setting process. Chairman Cox acknowledged the Commission’s support of the roles of the FASB and the IASB as independent standard setters, and emphasized the importance of both accounting bodies addressing accounting issues on a real-time basis. Strong sentiments were echoed by the panel participants affirming the importance of preserving the independence of FASB and IASB from government intervention.

The roundtable panel included both preparers of financial statements and users of such information, in addition to observers from the Public Company Accounting Oversight Board, Federal Reserve, Treasury, FASB and ISAB. Collectively the participants focused their discussions, comments and insight upon the sixth item listed in Section 133 of EESA, which asks the Commission to set forth an alternative accounting standard to FAS 157.

Within the context of the present economic crisis, some have attributed the U.S. market’s decline to the inadequacies of fair value accounting under FAS 157. However, it was the general sentiment of the panelists that FAS 157 is conceptually adequate and should not be suspended or replaced, although it was acknowledged that further guidance was necessary to simplify as what some characterized as a complex set of rules. the panelists generally agreed that maintaining investor confidence in fair value reporting is paramount, and stressed that financial statements must reflect fair value. A suspension of fair value would continue to decrease investor’s confidence in the current market system and likely prolong the current crisis.

As discussed in the first roundtable that was hosted by the SEC in October, the panelist also agreed that fair value accounting was the most efficient standard of measurement when the market is liquid and active. Although the common consensus among the panelist was that fair value accounting did not precipitate or play a role in current market crisis, it was noted that the valuation of certain financial instruments after the crisis emerged did contribute to the decline in the economy when many financial instruments moved from a liquid to an illiquid market. where there is an absence of data and a significant variation in the data that is out there.

The SEC is scheduled to complete its study by January 2, 2009.