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

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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