Fair value reporting, long a contentious issue, has become even more controversial now that most companies are required to value illiquid assets at market prices and record them on the balance sheet. The implementation of FAS 157 in the first quarter, coinciding as it did with the lingering effects of the credit crisis, prompted both Standard & Poor's and the International Institute of Finance (IIF) to recommend changes that, at the very least, would lead to clearer guidance and, at most, would relax or suspend the rules.

The subject is so controversial, in fact, that the IIF was forced to rescind its most divisive proposals following angry protests from some members, including Goldman Sachs and Morgan Stanley who oppose wholesale changes to FAS 157. A key area of contention was the global banking lobby's pitch to use historical prices instead of fair market prices in valuing assets, thus softening the blow to balance sheets during times of economic uncertainty.

Lucas van Praag, a Goldman spokesperson, dismissed the IIF's initial recommendations as "Alice-in-Wonderland accounting" that would let companies misrepresent assets by using inaccurate valuation data. So disturbed was Goldman that it severed its relationship with IIF last week, says van Praag. After the squabble among IIF members, the organization basically agreed with S&P that fair value accounting should continue, albeit with clarification of confusing points.