Although fair value accounting has been a part of GAAP since the early 1990s, the use of fair value measurements has increased steadily over the past decade, primarily in response to investor demand for relevant and timely financial statements that will support better-informed decisions. However, until the Financial Accounting Standards Board issued FASB Statement 157, Fair Value Measurements (FASB Accounting Standards Codification™ (ASC) 820, Fair Value Measurements and Disclosures) in September 2006, there were various definitions of fair value and limited guidance on the application of these definitions.
ASC 820 creates a single definition of fair value for financial reporting, establishes a framework for measuring fair value and expands fair value measurement disclosures.
General
- Fair value measurements: FASB Statement 157 (November 30, 2006 - revised for FASB Codification on July 1, 2009)
In an effort to increase consistency and comparability in fair value measurements, the FASB recently issued Statement 157, Fair Value Measurements, which replaces various definitions of "fair value" that currently exist throughout GAAP with a single definition. - FASB issues three FSPs in response to credit crisis (April 29, 2009 - Revised for FASB Codification July 1, 2009)
In response to constituent feedback and financial statement user demand, the Board recently issued three FASB Staff Positions (FSPs) that address areas of accounting guidance that have received considerable scrutiny as global financial markets have struggled. The FSPs are: FSP FAS 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly,” FSP FAS 115-2 and 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments" and FSP FAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments." This bulletin describes the guidance in each of these FSPs, including their scopes, presentation and disclosure requirements, effective dates, and transition considerations. - Guidance issued on measuring liabilities at fair value (August 31, 2009)
The FASB issued ASU 2009-05, Measuring Liabilities at Fair Value, to clarify how entities should estimate the fair value of liabilities under ASC 820. Under ASC 820, the term fair value measurement includes an assumption that a liability is exchanged in an orderly transaction between market participants. Most liabilities, however, are not transferred in the marketplace. Although some are traded on active markets as assets, such as certain bonds, it has not been clear whether an asset price represented the fair value of a liability under ASC 820. The FASB therefore issued guidance to improve the consistency of how entities apply the fair value measurement guidance to liabilities. - FASB offers practical expedient for measuring fair value of alternative investments (October 21, 2009)
The FASB issued ASU 2009-12, Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent), to amend the existing guidance in ASC 820. The ASU amends ASC 820 to create a practical expedient to measure the fair value of investments in certain entities that do not have a quoted market price but calculate net asset value per share or its equivalent. Those investments are sometimes referred to as “alternative investments” and include certain hedge funds, private equity funds, real estate funds, venture capital funds, common/collective funds, and offshore funds. - FASB expands disclosure requirements for fair value measurements (January 21, 2010)
The FASB issued ASU 2010-06, Improving Disclosures about Fair Value Measurements, to enhance the usefulness of fair value measurements. The amended guidance requires both the disaggregation of information in certain existing disclosures, as well as the inclusion of more robust disclosures about valuation techniques and inputs to recurring and nonrecurring fair value measurements. - FASB converges fair value guidance in U.S. GAAP with IFRS (June 27, 2011)
The FASB issued ASU 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs, to converge fair value measurement and disclosure guidance in U.S. GAAP with the guidance in the IASB’s concurrently issued IFRS 13, Fair Value Measurement.
Disclosures
- Fair value disclosures: A focus on employee benefit plans (September 21, 2010)
The FASB issued several standards in 2009 and 2010 that could impact an employee benefit plan’s fair value measurement disclosures. - Fair value disclosures: A focus on not-for-profit entities (September 21, 2010)
The FASB issued several standards in 2009 and 2010 that could impact a not-for-profit entity’s fair value measurement disclosures.
