Mark to Market: Discrepancies in Risk and Value FASB's recent reapplication of mark to market accounting methods is a god-send for many companies.  It should give these firms a more concrete framework to value illiquid assets.  This is especially true of the financial institutions that were stuck with mortgaged backed securities.   However, FASB wanted to express to investors and shareholders the potential discrepancies that may arise with the use of this new accounting method.  Fair value accounting methods do not consider the riskiness of an asset.  To paraphrase Robert Herz, the FASB Chairman, "We've told people repeatedly that it's not a last-trade model.  The balance sheet gives you the fair value, but it does not give you the fair value ‘at risk' connected with some of the more exotic instruments."  On the hill, members of the House Finance Sub-Committee, parroted Herz's comments and suggested that firms need to record their assets with more transparency.  Inventor due-diligence should not stop at the balance sheet.  Investors should also examine the notes to financial statements to see how liquid a firm's assets really are.  Good notes will also express changes in going-concern regarding the liquidity of assets. Considering these concerns, FASB has offered accountants a number of alternative valuation methods that would complement mark to market values or even completely replace them.  One option would be applicable only to debt securities.  This could be achieved by looking at cash-flow models that reflect an assets ability to generate a future returns.  Another alternative recommended by FASB was to limit the use of fair market value to speculative investments while at the same time valuing inventories using more traditional methods. Despite the perceived lateral flexibility that fair value accounting offers firms, there are some limitations.  Its application is only allowed in certain practices which include broker/dealers, investment companies, and insurance companies.  The SEC is monitoring how far companies bend these parameters.  For now, they regulator appear to be turning a blind eye. References: The Role of Mark-to-Market Accounting in the Financial Crisis. (2009). The CPA Journal, 79(1), 20-24.  Retrieved April 29, 2009, from ABI/INFORM Global database. Steven Sloan,  Cheyenne Hopkins. (2009, March). FASB Bows: Fair Value to Get Overhaul. Mergers & Acquisitions Report, 22(12), 12.  Retrieved April 29, 2009, from ABI/INFORM Trade & Industry database.