Improved Fair Value Guidance and Enhanced Disclosures
| Abbreviations Key |
| SEC: Securities and Exchange Commission |
| FASB: Financial Accounting Standards Board |
| FSP: FASB Staff Position |
| SFAS 157: Statement of Financial Accounting Standards No. 157, Fair Value Measurements (FASB ASC 820-10) |
Instructed by the
Emergency Economic Stabilization Act of 2008, the SEC studied mark-to-market standards because of concerns that fair value accounting, as measured under SFAS 157, contributed to instability in the financial markets due to improper write downs in the value of investments held by financial institutions when markets were inactive, illiquid, or irrational. Some felt that such write downs led to shortfalls of regulatory capital requirements and financial institution failures.
“Despite the criticisms of fair value accounting, the SEC concluded that it didn’t appear to have a consequential role in the failure of banks and other financial institutions in 2008. The study further concluded that the fair value method of measuring assets and liabilities on a company’s balance sheet and income statement shouldn’t be suspended; however, clearer guidance on how to apply fair value accounting was advised,” explains Dave Thorp, assurance and accounting principal with LarsonAllen.
On April 9, 2009, three clarifying FASB FSPs were issued. They are effective for interim and annual reporting periods ending after June 15, 2009, and should be applied prospectively. The FSPs are now included in the FASB Accounting Standards Codification, which became the single authoritative source of nongovernmental U.S. GAAP (other than guidance from the SEC) on July 1, 2009. Read our news story.
Read our white paper to learn about:
- FSP FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly
- FSP FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments
- FSP FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments
- Early adoption of the new FSPs
- Future fair value guidance
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