The Financial Accounting Standards Board has issued a standard providing guidance for using fair value to measure assets and liabilities.
The guidance provides a single definition for fair value as well as enhanced guidance on the issue. The board said that the standard responds to investors' requests for expanded information about the extent to which companies measure assets and liabilities at fair value, the information used to measure fair value, and the effect of fair value measurements on earnings.
According to the board, over 40 current accounting standards within generally accepted accounting principles require entities to measure assets and liabilities at fair value -- the methods for which have been inconsistent
"The standard clarifies that for items that are not actively traded, such as certain kinds of derivatives, fair value should reflect the price in a transaction with a market participant, not just the company's mark-to-model value," said FASB director and fair value measurements project manager Linda MacDonald, in a statement. "The standard also requires expanded disclosure of the effect on earnings for items measured using unobservable data."
The statement will be effective for financial statements issued for fiscal years beginning after Nov. 15, 2007, and interim periods within those fiscal years. As part of international convergence efforts, the International Accounting Standards Board intends to issue the statement to its constituents as a preliminary views document.
The full standard, "No. 157: Fair Value Measurements," is available at www.fasb.org/st/index.shtml.
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