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What to Do About Toxic Bank Assets

Auditors are afraid of being put out of business after the collapse of Arthur Anderson. For this and this reason only, auditors are extremely conservative and protective of their own interest by insisting on using the lowest possible price in valuing assets while using the highest possible price (at least at par) in valuing liabilities, notwithstanding what said in Fair Value accounting, aka FASB #157.

The amendment or so called guidance under consideration by board of FASB is simply forcing auditors to resume their responsibility under FASB #157 by doing hard work in valuing the assets rather than using the last trade price whether the market is distressed or inactive.

The guidance will have the same effect as valuing assets based on its intrinsic value, where such value can be derived from an active market or from cash flow analysis from an inactive market. In the end, the fair value accounting is simply creating more works and fees for auditors and providing no more or useful information for general public.