Professional Appraisal Organizations Caution against Weakening Fair Value Standards

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RISMEDIA, Oct. 31, 2008-The American Society of Appraisers (ASA), the Royal Institution of Chartered Surveyors (RICS) and the American Society of Farm Managers and Rural Appraisers (ASFMRA) have written to the Securities and Exchange Commission (SEC) and other federal agencies to raise their joint concerns over changes to the FAS 157 rule.

Given the current crisis in the financial markets, subprime mortgage issues and general worldwide economic instability, the group asserts that fair valuation standards are necessary to generate future global investor confidence. Such standards create a financial reporting system based on transparency, proper disclosure and mark to market information which, in turn, provides true valuation data to investor, regulator, policy maker and tax payer.

‘The current economic crisis is driving emergency actions including the easing of fair value requirements for reporting securities. However, it is important that regulators and the market do not lose sight of the basis for fair value reporting of financial instruments and all other assets.’ said Ronald Seaman, a Fellow of the American Society of Appraisers and the organization’s International President.

While fully supportive of the SEC and FASB’s effort to provide clarification on the issue of valuing financial assets, ASA, RICS and ASFRMA believe that a suspension of FAS 157, temporary or otherwise, for illiquid assets, is non-beneficial.

‘Suggesting that shareholders or regulators would be better served by some notion of “economic” or “fundamental” value based on the current value of holding a financial investment to maturity takes no account of the default risk that is currently causing the market paralysis. To deny disclosure of current value is to potentially mislead shareholders as to the current prospects of the business. If transparency causes sudden volatility, it is not the disclosure that is the issue but the problems it reveals. FAS 157 provides the discipline of reality,’ said Chris Thorne, a member of the RICS International Valuation Faculty Executive Board.

Fair Value reporting provides significant information on the risk and volatility of specific asset classes which will enhance policymakers’ ability to respond more accurately as markets change and diminish the opportunity for speculation.

For more information, visit www.appraisers.org.

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