Joint SEC-FASB guidance on fair value measurements

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01 Oct 2008

The US SEC's Office of the Chief Accountant and the FASB staff have jointly issued a press release containing questions and answers aimed at clarifying fair value measurement practices in the current environment.

They issued this guidance pending the completion by FASB of additional interpretative guidance about the requirements of FASB Statement No. 157 Fair Value Measurements in illiquid markets.

The joint press release contains answers to the following questions:

  • Can management's internal assumptions (eg, expected cash flows) be used to measure fair value when relevant market evidence does not exist?
  • How should the use of 'market' quotes (eg, 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?
Click for the Joint Press Release (PDF 25k). FASB has announced a change to the Agenda of its 1 October 2008 Meeting to consider a draft FASB Staff Position that would provide additional measurement guidance on FAS 157.

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