April 2 , 2009 -- The Federal Accounting Standards Board (FASB) today allowed for greater flexibility when financial companies value their investments.

FASB now allows companies to use their judgment when determining an asset’s “fair value.” Assets can now be valued at what they might sell for in an “orderly sale,” rather than under current market conditions. Previous guidelines on “mark-to-market” accounting forced institutions to value their investments at current market value, making these institutions record unrealized losses, or other-than-temporary impairment (OTTI), during downturns.

The new rules will also mitigate the impact of future OTTI by requiring only the credit loss portion of the impairment to be charged to income. Currently, OTTI is based on distressed market prices and the credit loss which results in a higher OTTI and charge against capital.

The changes take effect for the second quarter of 2009 and will not be retroactive.