What’s new with Fair Value and what does it all mean to you and your practice? BV experts can get assistance sorting it all out at our upcoming 2nd Annual Summit on Fair Value in Financial Reporting taking place on February 2 and 3—the one place you can meet with leaders from FASB, the SEC, the Public Company Accounting Oversight Board (PCABO), the Big Four, the IRS, and professional leaders to hear directly what your responsibilities, risks, and opportunities truly are. If you are doing valuations for financial reporting, you cannot afford to miss this comprehensive program at the Marriott Marquis in New York City. Slated to speak are a number of BV “heavy-hitters,” including Mike Mard, Aswath Damodaran, Neil Beaton, and others. Remember: Last year’s Summit was a sold out event!
In the interim, take a look at the Securities and Exchange Commission’s (SEC) recently released 211-page report to Congress, as mandated by the Emergency Economic Stabilization Act of 2008. In a nutshell, the report from the SEC's Office of the Chief Accountant and Division of Corporation Finance SEC recommended against the suspension of fair value accounting standards. Instead, it suggests improvements to existing practice, including:
1. Development of additional guidance and other tools for determining fair value when relevant market information is not available in illiquid or inactive markets, including consideration of the need for guidance to assist companies and auditors in addressing:
- How to determine when markets become inactive and whether a transaction or group of transactions are forced or distressed;
- How the impact of a change in credit risk on the value of an asset or liability should be estimated;
- When should observable market information be supplemented with and/or reliance placed on unobservable information in the form of management estimates; and
- How to confirm that assumptions utilized are those that would be used by market participants and not just a specific entity.
2. Enhancement of existing disclosure and presentation requirements related to the effect of fair value in the financial statements.
3. Educational efforts, including those to reinforce the need for management judgment in the determination of fair value estimates.
4. Examination by the FASB of the impact of liquidity in the measurement of fair value, including whether additional application and/or disclosure guidance is warranted.
5. Assessment by the Financial Accounting Standards Board (FASB) of whether the incorporation of credit risk in the measurement of liabilities provides useful information to investors, including whether sufficient transparency is provided currently in practice.
6. FASB reassessment of current impairment accounting models for financial instruments, including consideration of narrowing the number of models under U.S. GAAP. (The report finds that under existing accounting requirements, information about impairments is calculated, recognized, and reported on a basis that often differs by asset type.)
7. Improvements, including: Reducing the number of models utilized for determining and reporting impairments, considering whether the utility of information available to investors would be improved by providing additional information about whether current declines in value are consistent with management expectations of the underlying credit quality, and reconsidering current restrictions on the ability to record increases in value (when market prices recover).