Business Group Calls for Halting Fair Value Accounting as Virus Spreads

A prominent Washington trade group is reviving a debate that raged during the 2008 financial crisis: the validity of mark-to-market, or fair value, accounting in a disrupted market.

The Real Estate Roundtable on Tuesday asked the Financial Accounting Standards Board, securities regulators, and other officials to immediately suspend the accounting technique because of the pandemic’s broad financial ramifications.

“It is simply not possible to properly value assets in illiquid and non-functioning markets,” the group wrote. “We are concerned that the ‘mark to market’ or ‘fair value’ (FAS 157) accounting rules will further exacerbate the growing financial crisis.”

Measuring an asset at fair value means recording it at the price it would fetch in an orderly market, not at the asset’s historical cost, or what was actually paid for it. The accounting technique came under fire during the last financial crisis when markets reeled and banks had to write down billions in troubled assets. Critics—including members of Congress— said the accounting, which calls for changes in value to be recorded in earnings, exacerbated the crisis. FASB responded by clarifying the rules around how to value assets but didn’t repeal the measurement technique.

A FASB spokesperson said Tuesday that the board reached out to the real estate group to understand its concerns better. The group also sent the letter to the Securities and Exchange Commission, the Treasury Department, and the Board of Governors of the Federal Reserve System.