As public companies increasingly turn to so-called pricing service firms to provide fair-value estimates for securities on their books, the reliability of those numbers is worrying both the Securities and Exchange Commission and the Public Company Accounting Oversight Board.
Companies that use such third-party valuations for thinly traded securities, known as tier two assets, "can't simply take the numbers as gospel," Jason Plourde, a professional accounting fellow in the SEC's office of the chief accountant, told an American Institute of CPAs meeting in December. "Management outsourcing such valuation work must ask the following questions," Plourde says:
"Do we have sufficient information regarding the values provided by pricing services to know we're complying with GAAP?
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