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Study on Mark-To-Market Accounting

Report and Recommendations Pursuant to Section 133 of the Emergency Economic Stabilization Act of 2008: Study on Mark-To-Market Accounting OFFICE OF THE CHIEF ACCOUNTANT DIVISION OF CORPORATION FINANCE UNITED STATES SECURITIES AND EXCHANGE COMMISSION This is a report by the Staff of the Securities and Exchange Commission. The Commission has expressed no view regarding the analysis, findings, or conclusions contained herein. iTABLE OF CONTENTS Commonly-Used Abbreviations viii Executive Summary 1 I.

ii II. Effects of Fair Value Accounting Standards on Financial Institutions’ Balance Sheets 43 A. Methodology for Studying Effects of Fair Value Accounting Standards 43

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  Value, Market, Accounting, Fair, Marks, Fair value, Mark to market accounting

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Transcription of Study on Mark-To-Market Accounting

1 Report and Recommendations Pursuant to Section 133 of the Emergency Economic Stabilization Act of 2008: Study on Mark-To-Market Accounting OFFICE OF THE CHIEF ACCOUNTANT DIVISION OF CORPORATION FINANCE UNITED STATES SECURITIES AND EXCHANGE COMMISSION This is a report by the Staff of the Securities and Exchange Commission. The Commission has expressed no view regarding the analysis, findings, or conclusions contained herein. iTABLE OF CONTENTS Commonly-Used Abbreviations viii Executive Summary 1 I.

2 Introduction 11 A. How this Study Fulfills the Statutory Mandate 11 1. Statutory Mandate 11 2. Context for this Study 11 3. Approach to this Study 12 4. Structure of this Study 14 B. The Financial Reporting Framework 15 1. Balance Sheet 16 2. Income Statement 17 3. Other Basic Financial Statements 18 4. Notes to the Financial Statements, Management s Discussion and Analysis of Financial Condition and Results of Operations, and Other Disclosures 19 C.

3 Other Considerations 20 1. Role of Accounting in Prudential Oversight 20 2. International Considerations 20 D. Background Information on fair value Accounting 22 1. Definition of fair value 22 a. GAAP 22 b. IFRS 23 2.

4 Application of fair value Accounting 24 a. How fair value Impacts Accounting for Financial Instruments 25 i. GAAP 25 ii. IFRS 31 b. How fair value Impacts Accounting for Non-Financial Instruments 32 i. GAAP 32 ii. IFRS 33 3.

5 Historical Context for fair value Accounting 34 4. Other Measurement Bases 38 a. Description of Other Measurement Bases 38 b. Consideration of Measurement Attributes 40 iiII. Effects of fair value Accounting Standards on Financial Institutions Balance Sheets 43 A. Methodology for Studying Effects of fair value Accounting Standards 43 B. Empirical Findings from this Study on Effects of fair value Accounting Standards 45 1.

6 Assets 46 a. Significance of Assets Measured at fair value 46 i. Percentage of Assets Measured at fair value 46 ii. Percentage of Assets Measured at fair value through Income 49 iii.

7 Distribution of Issuers by Percentage of Assets Measured at fair value 52 iv. Use of fair value Option 54 v. Comparison of Percentage of Assets Measured at fair value Before and After Adoption of SFAS No. 157 and SFAS No. 159 57 b. Nature of Assets Measured at fair value on a Recurring Basis 58 c. Classification of Assets in fair value Hierarchy 60 i. fair value Hierarchy Classification over Time 61 ii. Distribution of Issuers by Percentage of Assets Classified as Level 3 63 2.

8 Liabilities 65 a. Significance of Liabilities Measured at fair value 65 i. Percentage of Liabilities Measured at fair value 65 ii. Distribution of Issuers by Percentage of Liabilities Measured at fair value 68 iii. Use of fair value Option 70 iv. Comparison of Percentage of Liabilities Measured at fair value Before and After Adoption of SFAS No. 157 and SFAS No. 159 72 b. Nature of Liabilities Measured at fair value on a Recurring Basis 74 c.

9 Classification of Liabilities in fair value Hierarchy 75 i. fair value Hierarchy Classification over Time 75 ii. Distribution of Issuers by Percentage of Liabilities Classified as Level 3 78 3. Equity 79 a. SFAS No. 157 Adoption 79 b.

10 SFAS No. 159 Adoption 82 c. Accumulated Other Comprehensive Income 84 iii 4. Income Statement 86 a. Recurring fair value Measurements 87 i. Recurring Mark-To-Market Adjustments 87 ii. Level 3 fair value Measurements 89 iii. Impact of Changes in Creditworthiness in Measuring Liabilities 91 b. Non-Recurring fair value Measurements (Impairments) 92 i. All Impairments 92 ii. Other-than-Temporary Impairments on Securities 93 iii.


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