Mark-to-Market Accounting in the Absence of Marks

Recent statements from the SEC and the Financial Accounting Standards Board suggest that hedge fund managers and auditors will have significantly more leeway in establishing the fair value of financial assets, a move that has been welcomed by the hedge fund community, but that at the same time has raised issues of interpretation and application.  Many hedge funds are concerned that the lack of clear regulatory guidance might open the door to valuation inconsistencies.  At the heart of this matter are recent clarifications regarding Financial Accounting Standard (FAS) 157, which outlines the basic rules that apply to mark-to-market accounting.  We detail those clarifications, and analyze regulatory guidance – such as it is – on applying those clarifications, especially in today’s environment, where marks are often hard to come by.

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