‘Market participant’ concept can’t be ignored

BVWireIssue #62-2
November 14, 2007

Also overheard at the ASA BV conference in San Diego: One participant likened fair value for financial reporting in general to a “magical mystery tour,” while another called its key concept of market participants “a myth.”   Even so—it’s a myth that can no longer be ignored, according to Anthony Aaron (Ernst & Young), who spoke on SFAS 157.  “Our business valuation reports [prepared for financial reporting purposes] all need to speak to the market participant issue.”    If not, many auditors will assume the appraiser incorrectly overlooked the issue—or didn’t understand it.   Aaron admitted that guidance on defining a market participant is scarce, and may even confuse the concept of fair value.  “But the issue is central to FAS 157 work,” he said.  “You don’t have to be specific, but [auditors are] looking for language that says ‘we understand the concept of market participant as it relates to this valuation, and this is how we considered it.’”

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