(SEC) not only encouraged the continued use of fair value accounting, it

suggested an expansion of fair value accounting. This study was mandated

by Congress in connection with an October 2008 law aimed at bringing

stability to the financial institutions sector hit hard by the economic

downturn. The law mandated that the SEC study the fair value accounting

provisions described in SFAS 157 and other standards, examining six

issues:

1. The effects of the fair value accounting standards on a financial institution’s

balance sheet

2. The impacts of these accounting standards on bank failures in 2008

3. The impact of these accounting standards on the quality of financial

information available to investors

4. The process used by FASB in developing standards

5. The advisability and feasibility of modifications to such standards

6. Alternative accounting standards to those described in SFAS 157 and

other fair value accounting standards

In its endorsement of fair value accounting, the SEC noted that the current

accounting standards were each subject to a lengthy and thorough due

diligence process. A quick suspension of fair value accounting (which was

suggested by some members of Congress) would circumvent this due process

and could actually result in greater uncertainty over financial reporting

by investors and others.

Rather, in its report the SEC suggests that clarifications and modifications

be made to SFAS 157 and some other standards with fair value accounting

requirements. The Commission also stated that more practical, useful

guidance on best practices and other fair value accounting applications is

necessary.

Although its analysis of the use of fair value accounting was limited to

a group of specific financial institutions, the SEC’s conclusions clearly were

intended for all entities subject to U.S. GAAP.

Sources of Accounting Principles

In the United States of America, accounting rules are collectively referred to

as generally accepted accounting principles (GAAP). The primary source of

U.S. GAAP is the Financial Accounting Standards Board (FASB). However,

predecessors to the FASB (such as the Accounting Principles Board) issued

many documents, some of which are still applicable. Documents issued by

FASB include Statements of Financial Accounting Standards (SFASs), FASB

Interpretations (FINs), and FASB Staff Positions (FSPs). In addition, within