Thursday, October 2, 2008

Senate Passes Financial Rescue Bill (EESA), Goes To House Next; FASB Takes Further Action

Last night, the U.S. Senate passed its version of the bill aimed at rescuing the financial markets and the broader economy from the current market turmoil. Dubbed the Emergency Economic Stabilization Act of 2008 (EESA), the bill passed the Senate by a vote of 74 to 25. One of the leading proponents of the bill, Senator Chris Dodd, Chairman of the Senate Banking Committee, released this statement following the vote. A copy of the Senate’s version of EESA is posted on the Senate Banking Committee website as of October 1 as follows: Senate version of EESA; Senate one-page summary of EESA; Senate section by section summary of EESA.

Earlier in the week, the U.S. House of Representatives failed to pass their version of the bill. The bill which passed the Senate includes significant changes from the House’s September 29 version of the bill. The next step is for the House to vote on an updated version of their bill; the vote is expected to take place today.

Mark-to-Market (Fair Value) Accounting in Senate Bill Identical to Earlier House Version
The Senate version of EESA passed on October 1 included identical provisions regarding mark-to-market (fair value) accounting as the earlier House bill did. Specifically, Section 132 of the bill reiterates the SEC’s authority to suspend application of FAS 157 if the SEC determines that would be in the public interest and the interest of investors. Section 133 of the bill requires the SEC, in consultation with the Federal Reserve and Treasury, to conduct a study on mark-to-market accounting standards as provided in FAS 157, including its effects on balance sheets, impact on the quality of financial information, and other matters, and to report to Congress within 90 days on its findings. See FEI summary of Sections 132, 133 of the EESA.

FASB Requests Comments by Oct. 9 on Proposed FSP on Fair Value; Guidance is In Addition to SEC-FASB Guidance Issued Sept. 30
FASB voted yesterday to issue further guidance on the application of FAS 157, Fair Value Measurement in inactive markets, in the form of an illustrative example(s). This decision follows by one day the Sept. 30 clarification of fair value accounting in inactive markets issued jointly by the SEC and FASB.

Companies should take note of the effective date and transition provisions which FASB plans to propose, as noted in FASB’s Summary of Decisions Reached: “The Board agreed to make proposed FSP FAS 157-d effective upon issuance; if the proposed FSP is finalized in time, entities with a calendar year-end would apply the guidance in their third-quarter financial statements. In addition, the Board accepted the staff recommendation that the following transition guidance be provided in the proposed FSP: Any changes in fair value would be included in an entity’s financial results; for example, entities with a calendar year-end would include any changes in fair value in their third-quarter results, and Retrospective application of the guidance to prior periods would be prohibited.”

Also as noted in FASB's Summary of Decisions Reached, the comment deadline on Proposed FSP 157-d will be Oct. 9, and FASB states it plans to meet on October 10 “to discuss the comments received in response to the Exposure Draft of the proposed FSP FAS 157-d and any additional matters.”

Watch FASB’s website http://www.fasb.org/ for the posting of Proposed FSP FAS 157-d, and visit FEI's website http://www.financialexecutives.org/ for updates on the latest news and information about our upcoming conferences, including our annual Current Financial Reporting Issues Conference (CFRI) in November, featuring remarks by the Chairmen of the SEC, FASB and IASB. If you'd like to receive our blog by email, sign up here.



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