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ARS Disclosures, Valuations Compliant, but Inconsistent

Tammy Whitehouse | September 4, 2008

The market for auction rate securities has been seized up for months, but ARS holders continue to paint very different pictures about the value and long-term prospects for their securities, according to an analysis of 600 public company filings.

Joseph Floyd, head of financial consulting for the Huron Group, recently pored over the auction rate disclosures looking for patterns. It’s not as if the valuations and disclosures are non-compliant, he says—the rules allow for acceptable inconsistency in reporting. Instead, says Floyd, “The burden of understanding that inconsistency is placed on the user of the financial statements.”

The market for auction rate securities sputtered to a halt in February when auction failures left holders unable to sell what they intended to be short-term investments. Auction rate securities are debt instruments with long-term maturities, though investors...

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