US accounting regulator to issue fair value guidance

The US Financial Accounting Standards Board is today expected to issue final guidance on the controversial issue of fair value accounting amid the global financial crisis.

The guidance from the board of the standard setter will clarify whether company assets are valued at cost or their market value – the so-called 'fair value' method.

Accounting regulators have come under pressure from bankers and political leaders in Europe and the US to drop fair value. Critics of fair value argue that it is exacerbating the global financial crisis by further depressing financial assets and making it harder for companies to access capital in markets where capital has evaporated.

Supporters of fair value say the accounting rule makes company accounts more transparent and easier to compare.

FASB has decided to rework two sections of the draft document that was put out for public comment one week ago — but stuck to its guns regarding mandating companies to use significant judgment when valuing financial assets in inactive markets, according to CFO.com.

The guidance clarifies items contained in FAS 157, the accounting rule that governs how to measure assets and liabilities using the fair value method.

The FASB staff will slightly rework the language that defines an inactive market, but will stop short of giving a 'bright line' definition. FASB chairman Robert Herz commented that the definition will explain that owners of financial instruments will be required to drill down to the asset level — as opposed to just assessing the market — to determine whether the market for that instrument is active.

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