CAQ Puts Valuation Guidance on Fast Track for Subprimes, Related Securities

September 19, 2007

FEI Summary

As reported in a Wall Street Journal article Sept. 18, 2007, "Auditors to Street: Use Market Price," representatives from the Center for Auditor Quality (CAQ) - affiliated with the AICPA - are drafting valuation guidance regarding the need to apply market values, even for thinly traded securities. The guidance is being prompted by depressed valuations and reduced liquidity in the subprime market and related securities.

CAQ representatives reportedly drafted the guidance following a meeting with the SEC. The WSJ reported the guidance says that "supposed long-term values for securities and loans don't trump what is happening in the markets today. Instead, companies have to value their holdings using whatever prices are out there, even if trading has tapered off or plummeted."

CAQ sent the draft guidance to a number of associations, including FEI, asking for comment in less than one week. Given the very short turnaround time, we may provide an informal response questioning the process for issuing this guidance.

Prepared Sept. 26, 2007 by Edith Orenstein, Director, Technical Policy Analysis, Financial Executives International (FEI). This summary does not represent FEI opinion unless specifically noted above.