Has FASB taken the first real step toward fair value accounting?

BVWireIssue #90-4
March 24, 2010

“When the history of accounting in the United States is written, March 10, 2010 will go down as one of the key dates,” says Alfred King (Marshall & Stevens), in a new op-ed piece for next week’s issue of Accounting Today. That was the day the Financial Accounting Standards Board (FASB) met to consider whether U.S. GAAP should include guidance similar to IAS 40, Investment Properties (part of IFRS). This is “really big news,” King tells the BVWire™. If passed, the proposed new project would converge with IAS40, “and would permit U.S. companies, for the first time to write up assets—something we have never done.”

IAS 40 currently distinguishes passive investment property capable of generating cash flows independently of other assets, from property that the entity actively manages with the rest of its operations. This distinction is problematic.  “Investment property can be reported at Fair Value, or not, under IAS 40. This could lead to disparate accounting for otherwise identical structures,” King writes in his op-ed piece, before adding (with emphasis): “Adoption of full convergence with IAS 40 will introduce true Fair Value accounting to users of U. S. GAAP.  Are we ready for this?  Do we need it? Do we want it?” Adoption of the new standard will change the ways in which companies manage their business; the focus will switch from operations to investment. “The FASB decision to consider adoption of IAS 40, as part of a convergence effort, may seem to be a minor blip in the course of recent development in GAAP,” King concludes. “To the contrary, in [my] opinion it is the start of a truly major revolution in financial reporting.” 

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