Mark-to-market is worth the trouble say rulemakers

By Emily Chasan

NEW YORK (Reuters) - Mark-to-market accounting may be imperfect, but alternatives that let banks mask the impact of changes in their asset values are far worse, two top accounting rulemakers said on Wednesday.

In their recent attempts to rescue the financial markets, lawmakers around the world have come down harshly on mark-to-market, or fair value accounting, which requires companies to put current market values on their financial assets.

Suspending fair value rules entirely and reverting to some other system would be a mistake, the accounting rulemakers said.

"It's a lousy system, but it's less lousy than any other system we've had so far," Tom Jones, vice chairman of the London-based International Accounting Standards Board, said of fair value accounting.

"When there isn't an illiquid market I think fair value does capture reality," Jones said in comments to a New York Society of Securities analysts on Wednesday. "I can't think of any other system that does."

Jones' comments echoed those of Financial Accounting Standards Board Chairman Robert Herz, who said fair value should not be so easily dismissed.

"The idea that a down market's assets should be written down has been a fundamental concept in accounting for a century or more," Herz told the audience.

"There are clearly issues with fair value, particularly in illiquid markets ... But what are the alternatives? To use original cost or some other smooth value that ignores current market conditions?"