The Reader

Accounting Boards Define Fair Value
Norwalk, Conn.
(January 21, 2010)

The Financial Accounting Standards Board and the International
Accounting Standards Board tentatively decided to define fair value as
an exit price during a three-day joint meeting this week.

Fair value measurement is one of the thornier issues the two
standards-setters are trying to come to an agreement on as they seek
to converge U.S. GAAP with International Financial Reporting Standards
by June 2011. Fair value, or mark-to-market, accounting has been
blamed in some quarters for helping exacerbate the financial crisis.
Standard-setters have come under pressure to revise the standards to
give financial institutions more flexibility in valuing assets such as
mortgage-backed securities that became difficult to trade during the
crisis. The two boards have decided to meet on a monthly basis, both
in person and by video conference, to resolve outstanding issues in
areas such as fair value, revenue recognition, leases and
consolidation.

When markets become less active, the two boards tentatively decided
that an entity should consider observable transaction prices unless
there is evidence that the transaction is not orderly. If an entity
does not have enough information to determine whether the transaction
is orderly, it should perform further analysis to measure the fair
value.

The boards also tentatively decided that the transaction price might
not represent the fair value of an asset or liability at initial
recognition if, for example, the transaction is between related
parties, the transaction takes place under duress or the seller is
forced to accept the price in the transaction, the unit of account
represented by the transaction is different from the unit of account
for the asset or liability measured at fair value, or the market in
which the transaction takes place is different from the market in
which the entity would sell the asset or transfer the liability.

The boards also tentatively decided to confirm that a fair value
measurement is market based and reflects the assumptions that market
participants would use in pricing the asset or liability. Market
participants should be assumed to have a reasonable understanding
about the asset or liability and the transaction based on all the
available information, including information that might be obtained
through due diligence efforts that are usual and customary. A price in
a related-party transaction may be used as an input to a fair value
measurement if the transaction was entered into at market terms.

--
Regards,
Parthiv Mehta

Go Green

P Please consider the environment before printing this e-mail. 1 ton of
paper = 17 trees. Reduce. Reuse. Recycle.

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