GASB proposal would define fair value

A GASB proposal released Thursday describes how fair value should be defined and measured in state and local government financial reporting.

GASB is proposing in its Fair Value Measurement and Application exposure draft that fair value be defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

Under the proposal, investments would generally be measured at fair value. Investments would be defined as a security or other asset that a government holds primarily for the purpose of income or profit that serves solely to generate cash or to be sold to generate cash.

Certain investments continue to be excluded from measurement at fair value, such as investments in money market instruments with remaining maturities at time of purchase of one year or less.

Current accounting standards require state and local governments to disclose how they arrived at their measures of fair value if they are not based on quoted market prices. GASB’s proposal would expand those disclosures to include the input a government uses to measure fair value and the judgments made to arrive at those inputs.

Comments can be emailed to director@gasb.org through Aug. 15. 

—Ken Tysiac (ktysiac@aicpa.org) is a JofA senior editor.