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A clarification of FAS 157 on fair value measurements that would apply in inactive markets.
With the credit markets significantly disrupted in the current financial meltdown, the FASB decided that financial statement preparers and accountants need guidance in applying FAS 157, Fair Value Measurements, in a market that is not active. To provide such guidance, the Board has issued FSP No. FAS 157-3, Determining the Fair Value of a Financial Asset When the Market for Tha t Asset Is Not Active.
The Board had previously issued FSP FAS 157-2, Effective Date of FASB Statement No. 157, which delayed the effective date of FAS 1 57 for nonfinancial assets and nonfinancial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis, until fiscal years beginning after November 15, 2008, and interim periods within those fiscal years.
Recently, certain constituents have expressed concerns that FAS 157 does not provide sufficient guidance on how to determine the fair value of financial assets when the market for that asset is not active. (See sidebar for some of the issues requiring guidance.) The guidance in this FSP is consistent with and amplifies the guidance contained in a September 30 press release from the Office of the Chief Accountant of the SEC and the FASB staff that addressed FAS 157 issues similar to the issues outlined in the sidebar.
Applying FAS 157 in a Market That Is Not Active
The FSP provides an example...