The Securities and Exchange Commission study of mark-to-market accounting will defend its use and the rulemakers who write accounting standards, but will call for more guidance on fair value and more work on how to determine when writedowns for troubled assets are warranted.

SEC Chairman Christopher Cox said in a speech to the American Institute of Certified Public Accountants that SEC staff is far enough along in its 90-day study on mark-to-market or fair-value accounting mandated by Congress to provide some preliminary conclusions. Cox said fair value can’t be blamed for the problems suffered either by financial institutions specifically or by capital markets generally.

“For many financial institutions, investments that are marked to market through earnings represent a minority of their total investment portfolio,” he said. “A larger portion is the available-for-sale securities and loans that are not marked to market through earnings each period.” Instead of being subject to troubling fair-value requirements, Cox noted, those securities are subject to difficult accounting judgments related to impairments, especially determining whether impairments should be viewed as temporary or “other than temporary.”

Cox defended the independence of the standard-setting process at the Financial Accounting Standards Board, where the accounting rules are written, imploring the future administration from excessive tinkering. Invoking lessons from the market collapse of the 1930s, the savings-and-loan crisis of the 1980s, and the corporate scandals of the 1990s and early 21st century, Cox said standard setting must remain free of self-serving influences. “It must also be protected from any regulatory reform in the new Congress and administration,” he said. “Accounting standards should not be viewed as a fiscal policy tool.”

Rulemakers will be asked, however, to provide some implementation guidance around measuring fair value, governed by the controversial Financial Accounting Statement No. 157, Fair Value Measurement, with a primary reliance on market prices to establish values. The banking lobby has hammered Congress and the SEC with demands for guidance on how to use market pricing when market activity has dried up, especially to curb what they believed was excessive auditor reliance on market prices or broker quotes.

“The accounting standard has served well, but we need robust, best practices guidance for auditors and preparers,” he said, especially while markets are inactive. Education efforts and guidance “must provide a path for auditors and preparers to reach common ground on these issues,” he said. He also said the study will encourage rulemakers to work on the accounting model for testing troubled securities for impairment. “Additional guidance would be useful to get consistent application.”

Results of the SEC study, mandated by Congress as part of the $700 billion Treasury bailout package for the banking sector, is due to Congress Jan. 2. Congress instructed the SEC to study the effects of mark-to-market, or fair-value, accounting on financial institutions balance sheets, the impact of that accounting on bank failures, and the impact of fair-value accounting on the quality of financial information available to investors. The SEC also was instructed to examine the process by which the Financial Accounting Standards Board establishes accounting standards, whether any standards should be changed, and any prospective alternatives to Financial Accounting Statement No. 157, Fair Value Measurement.