Fair Value and Derivatives Measurement and Disclosure. Jim Laures Deloitte & Touche LLP March 2, 2010. Agenda.
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Deloitte & Touche LLP
March 2, 2010
When and Why Issued
FASB issues FSP 157-4, Determining Fair Vlaue when the Volume and Level of Activiity for the Asset or Liability Have Significantly Decreased and Identifying Transactions that are Not Orderly.
FSP 157-4 superseded FSP FAS 157-3.
FASB Statement No. 157, Fair Value Measurements, established a single definition of fair value and a framework for measuring fair value. The statement also expanded disclosures of fair value measuerment.
FASB issued FSP FAS 157-3, Determining the Fair Value of a Financial Market when the Market for that Asset is not Active.
Primary intent was to reinforce the principles of FAS 157 and to emphasize the ability of an entity to use its own assumptions when obeservable inputs are not available.
The Emergency Economic Stabilization Act of 2008 mandated the SEC to conduct a study on market-to-market accounting standards.
The study was released in December 2008, concluding that existing fair value accounting requirements should not be supsended and recommended measures to improve the application of such requirements.
The Valuation Resource Group provided their views to FASB that additional guidance on inactive markets and distressed transactions was warranted.
Entities may consider additional factors. Must evaluate the circumstances to determine whether the transaction is orderly based on the weight of the evidence.
What does this mean?
Entities should “not ignore information that is available without undue cost and effort.”
What does this mean?
Entities should assess the nature of the quoted price and, based on its assessment, appropriately weight the quoted price along with other inputs in determining fair value.
“Major security types shall be based on the nature and risks of the security. An enterprise should consider the (shared) activity or business sector, vintage, geographic concentration, credit quality, or economic characteristic in determining whether disclosure for a particular security type is necessary and whether it is necessary to further separate a particular security type into greater detail.”
FASB ASU 2010-10, Consolidation (Topic 810) – Amendments for Certain Investment Funds (issued Feb 2010) (ASU 2010-10):
FASB ASU, 2010-09, Subsequent Events (Topic 855)—Amendments to Certain Recognition and Disclosure Requirements (Feb 2010)