Takeaways from the ASA’s 7th Annual Advanced Conference on Fair Value

BVWireIssue #116-4
May 23, 2012

“There are some important proposed FASB rules that will potentially affect valuation experts and their business clients directly, specifically with equity and fair value measurements,” said Ben Couch, Valuation Practice Fellow at the Financial Accounting Standards Board (FASB), speaking May 15 at the 7th Annual ASA Advanced Conference on Fair Value in Los Angeles. "Key among these proposed rules is the application of the instrument criterion for financial instruments,” he said. “Equity securities will be measured in fair value net income (FV-NI), with a practicability exception for nonmarketable equities held by nonpublic entities.”

Couch spelled out the characteristics of the instrument criterion: “It is a debt instrument, not a derivative, and the amount transferred that you would expect to get back, that is, the investor has some sort of control over the credit assets of the instrument that can be amortized.”

The framework FASB has come up with for equity instruments is an initial measurement in cost, less impairment, plus any upward or downward adjustments in fair value when a change in price is observable.

What does an observable change in price mean? Couch says it is price change in orderly transactions for identical or similar assets by the same issuer.

Meanwhile, Anthony Aaron (E&Y) noted an upcoming announcement that The Appraisal Foundation’s fourth working group on contingent consideration will pick five people for that group. Posting of the scope of work document on contingent consideration is expected in May or June 2012.

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