Valuation for financial reporting has long befuddled accounting professionals. Differences among industrial sectors often lead to inconsistencies, and recent new requirements for fair-value reporting have made the process even more confusing.

The Financial Accounting Standards Board formally opened a public forum on the issue when it tossed the profession an invitation to comment on the need for more guidance back in January. By April 15, 79 companies, individuals, audit firms and other parties had filed comments. A subsequent roundtable discussion elicited opinions and suggestions that were so varied that no consensus or mandate could be easily reached.

At the roundtable, PricewaterhouseCoopers partner Ray Beier expressed a common concern for finding a balance between the principles set forth in FASB's most recent pronouncement on valuation, Statement 157, Fair Value Measurements, and a perceived lack of specific guidance.

Statement 157 defined fair value, established a framework for measuring fair value and expanded disclosures on measurement. It did not, however, address many specific valuation issues that continue to confound corporate accountants, auditors and valuation professionals. These gaps in guidance have, to some extent, been filled by trade organizations in various industry sectors.

"Many of us in financial reporting don't want to end up in a rules-based world," Beier said, "but we have this sense that there is a need for guidance, so then the question becomes, how do we develop a process so we can get to the right answer?"

A FASB staff member declined to comment on the board's next step, except to say that the board would be discussing the issue internally before deciding whether or how to proceed with a project.


The invitation to comment sought ideas in three general topic areas: whether accountancy needs valuation guidance for financial reporting; whether the board should provide all guidance or whether others - trade groups, for example - should provide guidance at some level; and the process that should be used to issue guidance.

Alfred King, vice chairman of valuation consultancy Marshall & Stevens and a perennial commentator on controversies in accountancy, said that Statement 157 has aggravated the problem, and that guidance is most desperately needed.

"By coming up with a definition of fair value that the appraisal profession has never seen in 110 years, there is nobody with expertise today," King said. "The basic issue is that FASB completely overturned 110 years of valuation experience and created something new out of whole cloth - and the suit doesn't fit."

King's solution: a new standards-setting body composed mostly of valuation professionals. They would serve under FASB, much as the Emerging Issues Task Force does, issuing their own standards with FASB approval.

The American Institute of CPAs commented that the board should provide authoritative conceptual valuation guidance, but that other organizations should develop non-authoritative detailed implementation guidance.

CPA and business advisory firm BDO Seidman thought that valuation guidance should include a combination of conceptual and implementation guidance, but that the latter should not be provided "to such a level of detail that it would prescribe specific valuation approaches, methods or techniques for specific situations."

The Government Accountability Office felt that current valuation standards are sufficient. "Rather than issuing additional detailed implementation guidance, we believe that the accountability profession will be best served by allowing flexibility in selecting the appropriate valuation methodology or approach to address the facts and situations that reporting entities encounter within the broad requirements of SFAS 157 and ... Statement of Financial Accounting Concepts No. 2, Qualitative Characteristics of Accounting Information," the GAO's comment read, adding, "However, if FASB determines that implementation guidance is needed, then we believe that the best approach would be for FASB to develop broad conceptual guidance, rather than detailed implementation guidance, and to lead in developing and issuing such guidance by using a collaborative approach, rather than by selecting a single organization."

The Institute of Management Accountants expressed continued dissatisfaction with Statement 157, arguing that "application of that standard to non-traded, non-financial assets and liabilities often will not produce decision-useful fair values, and could pose significant application difficulties for preparers and auditors."

Echoing King's recommendation, the IMA suggested that FASB not attempt to develop valuation guidance, because it lacks resources and expertise.

The group said that guidance would be better issued by an independent organization - "under the umbrella of the Financial Accounting Foundation with oversight by FASB" - that was exclusively dedicated to devising standards on valuation.

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