FASB statement on fair value measurements.(Financial Accounting Standards Board)

Abstract

Purpose--This paper sets out to describe the FASB Statement on Fair Value Measurements (FAS 157).

Design/methodology/approach--Explains the Statement's definition of fair value, the three valuation techniques pre-scribed by the Statement, a fair value hierarchy established by the Statement, a valuation method used when inputs are based on bid and ask prices, and disclosures required by the Statement to enable users to assess the inputs used to develop fair value measurements.

Findings--The Statement identifies three valuation techniques: the market approach, the income approach, and the cost approach. The Statement establishes a fair value hierarchy based on whether the inputs are "observable" or "unobservable".

Originality/value--Explains a new accounting statement that may change some accounting practices of investment companies and broker-dealers.

Keywords Financial reporting, Financial institutions

Paper type Technical paper

Summary

The Financial Accounting Standards Board has issued its Statement of Financial Accounting Standards No. 157 ("Statement") that:

* defines fair value;

* establishes a framework for measuring fair value in generally accepted accounting principles ("GAAP");

* expands disclosure requirements for fair value measurements.

The Statement does not require any new fair value measurements, but instead attempts to achieve greater consistency and clarity under pre-existing accounting pronouncements that require or permit fair value measurements. The Statement will change some current practices with respect to the definition of fair value, the methods used to measure fair value, and expanded disclosures about fair value measurements. …