FAS 157, Fair Value Measurements, is just over 157 pages long—but the appendices and interpretative examples that take up most of those pages are a “must-read,” according to Jim Hitchner, who presented a session on the latest (and landmark) FASB fair value statement at the New York State Society of CPAs at the end of May.
“Some of the examples just don’t ‘feel’ right,” Hitchner said. For instance, in valuing the “highest and best use” of a nonfinancial asset, FAS 157 describes a hypothetical donor who contributes a playground to an otherwise developed residential area, with the stipulation that the land must continue as a playground. Because the restriction wouldn’t apply to market participants, if the highest and best use for the land is residential development—then the donee must book it at that value, despite its current and possibly perpetual use as a playground.
“There are a lot of decisions to make as you go through” FAS 157, added Hitchner, who’s never seen this degree of detail in a Board pronouncement. He expects further guidance from the FASB, as—after trying to parse and apply the FAS 157 standards, effective for fiscal years ending November 15, 2007—“appraisers will go nuts, not to mention the auditors.” A complete write-up on Hitchner’s session as well as other keynotes from the NYSSCPA conference will appear in the next (July) issue of the Business Valuation Update™.
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