Murray Progress 1


Market to market accounting is the process of "marking" or adjusting assets on a companies balance sheet to the "market value". This can be done as an upward or downward adjustment to the assets. Over the last several months the adjustments have been downward, and have been very significant.

The Financial Accounting Standards Board (FASB) is an independent group that sets the financial accounting reporting standards in the United States. In 2007, FASB released FAS 157 which was effective for fiscal years that began after November 15, 2007. This standard made it harder for companies to avoid putting lofty market prices on assets that are considered the hardest to value. These assets are known as Level 3 assets.

Since 1993(?) assets have been grouped into three levels of classes by the FASB. Level one assets are assets that have readily available market prices. An example of a Level one asset would be a stock traded on the NYSE. Level two assets are assets that don't have market prices; they are marked to market based on models. The models are built with similar assets that do have readily available market prices. An example of a level two asset would be stock of a privately held company. Level three assets are assets that don't have readily available market prices and don't have comparable items to feed into a model. This makes marking these assets to market extremely difficult. Valuing these assets have been called "mark to believe" and "mark to imagination" assets by several people in the industry. Examples of level three assets might be land or mortgage backed securities.

The latter has had a major effect on the depth of the current financial crisis.

More to come at a later time.

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