Financial Reporting Alert 08-11, SEC and FASB Release Fair Value Clarifications
September 30, 2008
Today, the SEC’s Office of the Chief Accountant and the Financial Accounting Standards Board (FASB) staff jointly issued a press release containing questions and answers aimed at clarifying fair value measurement practices in the current environment. It is our understanding that the FASB will meet shortly to consider adding guidance to FASB Statement No. 157, Fair Value Measurements, addressing the determination of fair value in markets that are not active.
The press release contains answers to the following questions:
• Can management's internal assumptions (e.g., expected cash flows) be used to measure fair value when relevant market evidence does not exist?
• How should the use of "market" quotes (e.g., broker quotes or information from a pricing service) be considered when assessing the mix of information available to measure fair value?
• Are transactions that are determined to be disorderly representative of fair value? When is a distressed (disorderly) sale indicative of fair value?
• Can transactions in an inactive market affect fair value measurements?
• What factors should be considered in determining whether an investment is other-than-temporarily impaired?
Stay tuned for our analysis of these developments.