FASB Issues Fair Value Proposals

The Financial Accounting Standards Board has issued a pair of proposed fair value staff positions written to provide additional guidance regarding measurements and impairments of securities, after coming under pressure at a congressional hearing to ease mark-to-market accounting standards.

Proposed FSP FAS 157-e, “Determining Whether a Market Is Not Active and a Transaction Is Not Distressed,” provides guidelines for making fair value measurements more consistent with the principles presented in FASB Statement No. 157, “Fair Value Measurements.”

Proposed FSP FAS 115-a, FAS 124-a, and EITF 99-20-b, “Recognition and Presentation of Other-Than-Temporary Impairments,” provides additional guidance designed to create greater clarity and consistency in accounting for and presenting impairment losses on securities.

Banks have complained that the current fair value and mark-to-market standards are exacerbating the financial crisis by forcing them to steeply mark down the value of the illiquid assets, such as mortgage-backed securities, that are difficult to sell and for which it is difficult to find buyers.

FASB is producing the proposed guidance on an accelerated schedule to meet the demands of members of congress who criticized FASB Chairman Robert Herz and Securities and Exchange Commission Acting Chief Accountant James Kroeker at a hearing last week for not acting sooner to ease the standards (see Congress Pressures FASB to Revise Mark-to-Market). The SEC produced a study on mark-to-market accounting in late December calling for improvements in fair value, but not for suspending the standards (see SEC Study Defends Fair Value Accounting).

Herz (pictured) promised at the hearing to issue new guidance on the standards within three weeks or face another contentious hearing and the threat of changes being dictated by Congress.

If approved, both proposals would be effective for interim and annual periods ending after March 15, 2009. Written comments on both proposals are due by Wed., April 1. FASB has scheduled a board meeting on April 2, to evaluate all comment letters and other input received on the FSPs. For more information, visit www.fasb.org.

The International Accounting Standards Board is considering aligning its own fair value standards with the new proposals from FASB as part of their effort at converging International Financial Reporting Standards and U.S. generally accepted accounting principles. IASB Chairman Sir David Tweedie reportedly asked to put out the FASB proposals for comment to the countries that follow IFRS rules, according to CFO.com, but some members of the IASB balked at the idea of simply disseminating the FASB's version of the proposals with a "wrap-around" from the IASB.