FASB to Take Up Fair Value Proposals

FASB board members meet today to consider proposed fair value guidance.

On the agenda for the meeting are two proposed FASB Staff Positions (FSPs): FAS 157-e, Determining Whether a Market Is Not Active and a Transaction Is Not Distressed, and FAS 115-a, FAS 124-a, and EITF 99-20-b, Recognition and Presentation of Other-Than-Temporary Impairments. The meeting is expected to include staff analysis of comment letters received on the proposals. The live audio webcast of the meeting will be available at www.fasb.org.

FASB, which came under pressure last month in a hearing by a House panel to quickly provide mark-to-market accounting guidance, will hold a press conference immediately after the meeting. FASB Chairman Robert Herz will field questions from the media and discuss the outcome of the mark-to-market talks.

On Wednesday, the AICPA’s Accounting Standards Executive Committee (AcSEC) and the Private Companies Practice Section (PCPS) Technical Issues Committee (TIC) both submitted comments to FASB on fair value accounting issues. In its letter, AcSEC said it does not support proposed FSP FAS 157-e as written. “We believe that the FSP’s presumption that transactions in a market that is not active are distressed is inconsistent with the objectives of the fair value measurements standard (FASB Statement no. 157), and the FSP may lead to measurements that ignore observable data and do not represent fair value,” the letter states.

AcSEC also voiced concerns about potential unforeseen consequences of proposed FSP FAS 157-e. “We are concerned that this FSP might lead to unnecessary, unforeseen accounting issues for financial assets that are not tied to mortgages,” the letter states.

The committee expressed support for the other proposal but offered some comments.

TIC, which advocates for local and regional firm interests on behalf of PCPS, said it “generally welcomes the guidance” provided in proposed FSP FAS 157-e. The committee said it expects that the cost of implementing the guidance will be “quite high” because preparers will need to establish internal control systems and processes to ascertain information related to inactive market factors.

The committee recommended FASB consider additional disclosures as part of both proposals and it weighed in on FASB’s proposed effective dates for both, which would require implementation for interim and annual periods ending after March 15, 2009. TIC recommended that the implementation date for both be deferred to interim and annual periods ending after June 15, 2009, with earlier application permitted.

Separately, the Center for Audit Quality (CAQ) recommended that FASB not move ahead with proposed FSP FAS 157-e.

In a comment letter responding to FASB’s fair value accounting proposals, CAQ Executive Director Cindy Fornelli stated, “By ignoring relevant market transactions and moving to models in such a wholesale manner, transparency will suffer and the measurement results will no longer represent ‘fair value’ as defined by Statement 157.”

The CAQ said it believes the proposed FSP FAS 115-a, FAS 124-a, and EITF 99-20-b, with some modifications, will provide preparers relief from the impact of fair value measurements in illiquid markets without significantly reducing transparency.