Wednesday, May 6, 2009

What's New With Fair Value?

At its board meeting earlier today, the Financial Accounting Standards Board discussed approaches to determining the fair value of alternative investments, such as investments in hedge funds and private equity funds, in accordance with FASB Statement No. 157, Fair Value Measurement.

There was some discussion at today's board meeting about the staff recommendations in the board handout (pages 5-12), concerning the scope of this guidance, as well as the application of fair value methodology compared to (unadjusted) net asset value (NAV). In addition, some FASB board and staff members suggested considering disclosure requirements analogous to that provided in FASB Staff Position (FSP) No. FAS 132R-1, Employers’ Disclosures about Postretirement Benefit Plan Assets.

FASB Also Proceeds On Separate Project To Improve Fair Value Disclsoures
FASB Technical Director Russell Golden said the staff may bring the disclosure package for the alternative investments FSP back to the board together with separate proposed guidance on a broader project (included among the fair value guidance projects announced by FASB on Feb. 18) to improve (including by potentially requiring additional) disclosures about fair value measurements. Golden indicated staff currently plan to bring the broader disclosure project to the board at the May 18 board meeting (See FASB calendar).

FASB staff currently expect to be able to issue the proposed FSP on fair value of alternative investments on or about May 22, and with the 30-day comment period agreed to by the board, expect to be able to issue a final FSP in July. Read more in this FEI Summary; reference should be made to FASB's official Summary of Board Decisions, generally posted within a day of board meetings in FASB’s News Center. (Separately, we recently reported that FASB released for public comment Proposed FSP FAS 157-f , on Measuring Liabilities Under FAS 157.)

Rep. Bachus Requests Hearing To Review Mark-to-Market Application
In other news on the fair value front, Rep. Spencer Bachus (R-AL), ranking member on the House Financial Services Committee, recently sent a letter to Rep. Barney Frank (D-MA), chair of that committee, on the subject of fair value (also called mark-to-market) accounting.

Specifically, Bachus' April 27 letter to Frank references the committee's March 12 hearing on this subject, acknowledges related guidance issued by FASB and the PCAOB in April, and states: "While the FASB acted expeditiously to respond to many of the concerns raised by the Subcommittee Members," [i.e. the subcommittee on Capital Markets], "questions remain as to the ultimate effectiveness of the fair value accounting revisions. Therefore, I request that the Committee schedule a hearing at the first available opportunity to hear from the Securities and Exchange Commission, FASB and the [PCAOB] ... to review their actions and additioanlly receive testimony from those most affected by the FASB's actions." Bachus also posted this related press release and timeline.

NOTE: If you are new to our blog, among our recent posts relating to fair value, see also our recent post: FASB-IASB Advisory Group (FCAG) Updates, Cautions G-20.

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Randall Schostag said...

Until they get it right (if there is such a thing), I can't see how the issue of fair value accounting is going to subside, short of a favorable market with less volatility.

With a 38.5% decline in the S&P 500 Index in 2008 and another 15% to 20% fall before the recent rally, public companies have been displaying huge writeoffs in intangible assets, including goodwill. And shareholder litigation is sharply on the rise, according to an annual report prepared by the Stanford Law School Securities Class Action Clearinghouse and Cornerstone Research. According to that report a significant number of the cases were brought against financial institutions and featured fair value related matters.

In our own work, the Minnesota Business Valuation Group was disappointed by the narrowness of the recent FASB changes, with a focus only on debt, and with a basic continuation of mark-to-market methods and little clarification of Level 2 and Level 3 reporting. This has done little for us on the equity side, especially with respect to private equity holdings, except to see that once again those issues have been avoided.

I want to thank FEI Financial Reporting Blog for keeping us abreast of these developments and alert to possible input. Without this kind of updating, we'd likely hear about any such developments only after the fact with no chance for input.

Randy Schostag

Eran said...


Thank you, as always for this posting, which is timely, relevant and concise.

Just wanted to express my appreciation of your efforts.