Oct. 1 (Bloomberg) -- Financial Accounting Standards Board Chairman Robert Herz defended the fair value rule that lawmakers blame for exacerbating the global credit crisis, calling political interference a threat to his panel's independence.

Herz, commenting today as Congress presses regulators to suspend the rule, said he disagrees that requiring companies to review assets and report losses if values decline is harming companies and undermining confidence in financial markets.

A ``pervasive concern is always the threat of intervention into our independent process,'' Herz said after a FASB board meeting in Norwalk, Connecticut. It's important that ``our process not be politically influenced,'' he said.

Republican lawmakers have pressed the U.S. Securities and Exchange Commission to suspend the rule after companies including American International Group Inc. complained that it forces firms to report losses they don't expect to incur. The U.S. Senate is to vote tonight on a $700 billion financial- rescue plan that would let the SEC suspend the fair-value rule.

The U.S. House of Representatives probably would have approved the financial-rescue measure sought by Treasury Secretary Henry Paulson had it included a suspension of fair value, Representative Todd Tiahrt, a Kansas Republican, said yesterday in a Bloomberg Television interview. The House, which rejected the plan 228-205 on Sept. 29, may revisit it Oct. 3.

`Other Objectives'

``Financial reporting is meant to provide good accounting and good information for investors in the capital markets, and is not meant for other purposes,'' Herz said. ``Sometimes people try to subvert that with other objectives.''

The SEC probably will resist calls to suspend the rule, people familiar with the matter said yesterday. FASB sets U.S. accounting standards, though the SEC has the power to override them.

At today's meeting, FASB proposed giving companies clearer guidance on valuing illiquid assets, without making any changes to the current rule. The plan aims to clarify for companies ``how to go about a reasonable estimate of fair value'' in an ``inactive market,'' Herz said.

Companies could decide that using ``internal assumptions about market participants' expectations of cash flows'' represents fair value, FASB said in today's proposal, which is subject to an ``accelerated'' comment period ending Oct. 9.

``I think companies were maybe over-interpreting the standard'' to mean they must use any sale in the marketplace to determine fair value, former FASB board member Donald Young said today in an interview. ``That was not FASB's intention.'' Young was on the board when it passed the rule defining fair value in September 2006.

AIG, the biggest U.S. insurer by assets, was saved from collapse by a government takeover last month after reporting more than $25 billion in writedowns on credit-default swaps. Financial companies have reported $589 billion of writedowns and credit losses on assets including mortgage-backed securities since the start of 2007.

To contact the reporter on this story: Ian Katz in Washington at ikatz2@bloomberg.net.

Last Updated: October 1, 2008 15:50 EDT