CFA INSTITUTE CALLS TALK OF FAIR VALUE RULES DELAY ‘MISGUIDED’ CHATTER

Posted April 17, 2008

NEW YORK – Any delays in implementing fair value rules would be “misguided,” says the CFA Institute. Expansion of fair value measurement rules for financial instruments as proposed by FASB and IASB [the Financial Accounting Standards Board and the International Accounting Standards Board] has gained support from professional investors, represented by the CFA Institute Centre for Financial Market Integrity.

“We believe that the widespread use of fair value measurement will ultimately play an important role in improving market discipline and transparency, as well as assist in making more informed risk management decisions,” says Kurt Schacht, Managing Director of the CFA Institute Centre. “Current chatter about the need to ‘roll-back’ or revisit fair value is a misguided effort on behalf of preparers that would ultimately result in less transparency and market integrity. Maintaining the current mixed attribute model for reporting financial assets and liabilities has enabled more complacent risk management and has contributed to the lack of market discipline identified by regulators.”

CFA surveyed 2,006 of its members worldwide, finding that 79 percent of those members believe that fair value requirements improve transparency and contribute to investor understanding of financial institutions’ risk and 74 percent think fair value requirements will improve market integrity.

“Fair value accounting and supportive disclosures are a cornerstone to building the infrastructure needed for a more broadly effective risk management system,” says Schacht. “Fair value measurement of financial instruments will ultimately provide the market data necessary for best-in-class risk management, by requiring companies to more fully understand their risk profiles and communicate this to investors and other providers of capital on a timely basis.”