SEC Sees Need for 'Guidance' on MBS Accounting

The Securities and Exchange Commission has nearly completed a study on mark-to-market accounting and preliminary findings point to the need for additional guidance in valuing mortgage-backed securities in inactive or illiquid markets, according to SEC chairman Christopher Cox. "The work we have already done suggests that the accounting standard setters could improve upon the existing security impairment models," the SEC chairman told an American Institution of Certified Public Accountants. Congress mandated the study because financial services executives are complaining that mark-to-market accounting is forcing wholesale writedowns of assets at fire-sale prices. "Investors have also clearly indicated a view that the current concept of mark-to-market accounting increases transparency of financial information provided to investors - but that in inactive or illiquid markets, additional guidance would be useful to promote reasonable application of the standards," Mr. Cox said. SEC is slated to submit its mark-to-market study to Congress by Jan. 2.