FASB Revisits Present Value in Accounting
Two years after exposing a proposed concepts statement on this topic, the Financial Accounting Standards Board (FASB) has released a revised proposal, Using Cash Flow Information and Present Value in Accounting Measurements .
The proposed concepts statement provides a framework for using future cash flows as the basis for an accounting measurement and sets forth general principles governing the use of present value (especially when the amount of future cash flows, their timing or both are uncertain). It also offers a basis for the objectives of present value in accounting.
Wayne Upton, a senior project manager with the FASB, said the original exposure draft had been modified to reflect clarifications and suggestions made by constituents. (For more on the June 1997 exposure draft, see "Measurement: The Big Picture," JofA , Aug.97, page 14.)
"There are two big changes from the 1997 draft," Upton said. "The previous document determined that there were two possible objectives for present value measurements," he explained. "One is clearly to get fair value at initial recognition and the other"entity specific" measurementattempts to capture the value of an asset or liability in the context of a particular entity." Because FASB members could not identify any situations in which they would use the entity-specific notion, FASB omitted the entity-specific objective from the revised draft, Upton said.
The second change deals with measuring liability, said Upton. In the 1999 draft, an entity's credit standing should always be considered in that measurement.
The deadline for written comments on the revised draft (product code E150) is August 1, 1999. For copies, call the FASB order department at 800-748-0659. The proposal is also available on the FASB Web site, www.fasb.org .