By Rachelle Younglai

WASHINGTON, March 3 (Reuters) - The chairman of the U.S. corporate audit industry's watchdog balked on Monday at the idea of modifying "fair value" accounting methods, which are used to value hard-to-price assets such as mortgage-backed securities.

"The bigger problem is that I think that people didn't like the answer. And so they would like to have seen a change in the rules or a change in the formula," Mark Olson, the chairman of the Public Company Accounting Oversight Board, told reporters on the sidelines of a banking conference.

Olson's comments come as some investors have started questioning the fair value accounting methods, which is a way of accounting for assets and liabilities based on how much they are currently worth as opposed to using historical values.

Critics say fair value accounting has exaggerated write- downs related to the fallout of the subprime mortgage industry. They also say that when a market dries up, such as the credit market, companies must use complex models to come up with values that can be confusing to investors.

Proponents of fair value accounting view the method as being more transparent for investors.

Merrill Lynch & Co Inc MER.N, Citigroup Inc (C.N: Quote, Profile, Research) and Morgan Stanley (MS.N: Quote, Profile, Research) are some of the banks that have been forced to incur billions of dollars in write-downs related to their mortgage losses.

But Olson said this is not a time to modify existing requirements or issue new ones.

"I think the (accounting) literature is pretty clear that there are steps that you can take to try and determine fair value even in relatively illiquid markets," Olson said.