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A review of a new Statement that provides guidance for using fair value to measure assets and liabilities.
The FASB has issued FAS 157, Fair Value Measurements, to provide a framework for measuring fair value in GAAP, and to expand disclosures about fair value measurements. This Statement does not require any new fair value measurement; instead, it applies under other accounting pronouncements that require or permit fair value measurements. However, for some entities, the application of this Statement will change current practice.
The Statement applies under other accounting pronouncements that require or permit fair value measurements, except as follows:
* This Statement does not apply under accounting pronouncements that address share-based payment transactions: FAS 123(R), Share-Based Payment, and its related interpretive accounting pronouncements that address share-based payment transactions.
* This Statement does not eliminate the practicability exceptions to fair value measurements in accounting pronouncements.
* This Statement does not apply under accounting pronouncements that require or permit measurements that are similar to fair value but that are not intended to measure fair value, including the following:
* accounting pronouncements that permit measurements that are based on, or otherwise use, vendor-specific objective evidence of fair value; and
* inventory pricing.
Definition of Fair Value
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A fair value measurement assumes that the asset or liability is exchanged in an orderly transaction between market participants. An orderly transaction is a transaction that assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets or liabilities; it is not a forced transaction.
A fair value measurement assumes that the transaction to...