John Kay had this to say in the FT yesterday. The rest is also well worth reading:
Mark-to-market accounting is criticised today for forcing banks to recognise that unsalable assets have little value. Companies resent the obligation to use mark-to-market accounting when the market is down. But the public should be more concerned for the implications of mark-to-market accounting when the market is up. The authors Bethany McLean and Peter Elkind describe how Enron's Jeff Skilling, in a fit of uncharacteristic generosity, once ordered champagne for all his colleagues. The toast was in appreciation of a letter from the Securities and Exchange Commission agreeing that Enron could make wide use of mark-to-market accounting.
Mr Skilling believed, as do many traders and financiers, that people should receive credit for the full discounted expected present value of their ideas at the moment of inspiration. Newton, thou shouldst be living at this hour! But it is easier to reward people on the basis of what they believe they are worth than to recover bonuses from people whose ideas turn out not to have been as good as they thought. Even Newton's heirs might have struggled to repay when Einstein demonstrated flaws in Newtonian mechanics.
I think mark to market is over.
The IASB should not be.
But it really does have to produce relevant and reliable data, and it has not yet proven its ability to do so through the standards it has promoted.
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Richard,
Being, fortunately, out of the accounting game for some time, this issue confuses. Understanding the concept and reasons of mark to market, no problem.
Questions for TR-UK:
1) How often is a firm required to mark to market? Q reports?
2) The idea behind mark to market is important, transparency of reporting the true value of assets, otherwise swinging back the other direction can be dangerous as well in that a firm appears much more healthy than is reality.
Illumination?
1) In all external reports
2) Mark to market is irrelevant if the asset is not for sale but has been bought for its value in use. It therefore biases towards trading not making, speculating not pursuing constructive activity.
That is harmful
Richard