Subject: File No. 4-573
From: Brittany Gichini
Affiliation: Student, University of Maryland-University College

November 12, 2008

The point of completing Financial Statements is to show where a company stands financially. All information presented in financial statements is to be fair in representation for the financial statement users. The use of Mark-to-market accounting is a way to report the value of an asset on its books at its fair market value. To know the fair market value of a company, as an investor, it is the responsibility to share all values of high-risk assets at their fair value. This ensures that an investor and other users of the Financial Statements know when the entity is doing well, or poor, with where the economy is in that period. It is important to portray where a company will be if there is a financial crisis with the market as is occurring right now throughout the world which is the reason issues are being raised as companies have had to report large losses on their Financial Statements. However there were not any issues raised about Mark-to-Market accounting standards when companies, specifically Financial Institutions were reporting large gains due to the increase in the fair market value of assets. As the effects on the balance sheets of these companies have been negative due to loses that have occurred within the markets, it is still imperative to recognize the asset at the value received if the asset needed to be liquidated for any reason.

The original basis for implementing FASB 157 was due to the need for increased consistency and comparability in fair value measurements and for expanded disclosures about fair value measurements. (FASB #157) This was a needed change in 1997 and is still needed for not only physical assets, such as property, but also for the valuation of securities.

To report the value of an asset at its historical cost for investors would not be presenting information fairly when presenting the financial information on risky assets-risky meaning the value of the asset fluctuates consistently and there is never a guarantee as to the values increasing back to the historical value. Likely yes, guaranteed no. The bank failures in 2008 do have a lot to do with the reporting of losses on Financial Institutions Financial Statements, however more to do with the risky loans entered into by those banks. By getting into these risky loans with consumers, who cannot afford the ARM, Adjustable Rate, Jumbo, and Balloon and GPM loans. The losses have occurred due to those loan borrowers defaulting on the money borrowed for the purchase of that asset. With too many borrowers defaulting, the financial institutions have to report those losses. If lending is placed to a higher standard, the likelihood of this situation to happen again is slim.

A possible solution to Mark-to-Market accounting issues to create a contra asset account that will provide for the reporting of historical cost, or the change in the value of that asset causing the gain or loss for the company. Or the continual use of Mark-to-Market accounting standards to be used and place an explanation in the footnotes of the Financial Statements of an explanation of the value of those assets, e.g.: why was value lost, why there was a gain, etc. This information is important for investors and other users of the Financial Statements to decide where a company is financially, just as the Allowance for Doubtful Accounts is important to report when there are Accounts Receivables this helps an investor consider questions of the lending policies of the company in question. Reporting securities and other assets fairly through Mark-to-Market accounting standards will provide those possible investors with the opportunity to visualize if the company is overextending credit to too many risky borrowers.

Fair Value Accounting is accurate for the use in Financial Statements in presenting information fairly to the users. The implementation of FASB statement number 157 allowed for consistency in valuing that was already in practice.