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FVM WORKING DRAFT—REVISED 3/15/06
JUNE XX, 2006 Financial Accounting Series Statement of Financial Accounting Standards No. 15X Fair Value Measurements Financial Accounting Standards Boardof the Financial Accounting Foundation
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Summary This Statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and enhances disclosures about fair value measurements. This Statement applies under other accounting pronouncements that require fair value measurements, the Board having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute. Accordingly, this Statement does not require any new fair value measurements. However, for some entities, it will result in a change to current practice. Reason for Issuing This Statement Prior to this Statement, there were different definitions of fair value and limited guidance for applying those definitions within GAAP. Moreover, that guidance was dispersed among the many pronouncements that require fair value measurements. Differences in that guidance created inconsistencies that added to the complexity in GAAP. The Board decided to address those issues in this Statement. In developing this Statement, the Board considered the need for increased consistency and comparability in fair value measurements and enhanced disclosures about the measurements. Differences between This Statement and Current Practice The changes to current practice resulting from the application of this Statement relate to the definition of fair value, the methods used to measure fair value, and the expanded disclosures about fair value measurements. The definition of fair value in this Statement retains the exchange price notion in earlier definitions of fair value. However, it clarifies that the exchange price is the price that would be received for an asset or paid to transfer a liability in a transaction between market participants at the measurement date. In other words, the price used to measure fair value is an exit price considered from the perspective of a market participant (seller) that holds the asset or liability. The framework for measuring fair value in this Statement builds on current practice and requirements. However, certain of the methods to measure fair value required by this Statement may result in a change to practice for some entities. In particular:
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a. This Statement emphasizes that fair value is a market measurement; it is not an entity-specific measurement. Therefore, the measurement should include all of the assumptions that market participants would use in pricing the asset or liability and exclude factors specific to the reporting entity if information is available that indicates that market participants would exclude those factors. The market participant approach applies under other accounting pronouncements that require fair value measurements, including FASB Statements No. 141, Business Combinations, No. 143, Accounting for Asset Retirement Obligations, No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, and No. 146, Accounting for Costs Associated with Exit or Disposal Activities. b. This Statement clarifies that for a liability, a fair value measurement assumes that the liability is transferred at the measurement date to a market participant of comparable credit standing that would similarly perform (or similarly bear the consequences of not performing). Therefore, the reporting entity should consider the effect of its credit standing on the fair value of the liability in all periods in which the liability is measured at fair value under other accounting pronouncements, including FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities. c. For a large position (block) of a financial instrument that trades in an active market, this Statement affirms the requirement of other FASB Statements that the fair value of the block should be measured as the product of the quoted price for the instrument times the quantity held, thereby precluding the use of a blockage factor. This Statement extends that requirement to broker-dealers and investment companies within the scope of the AICPA Audit and Accounting Guides for those industries. d. For a restricted security (a security for which sale is legally restricted by governmental or contractual requirement for a specified period, whether the restriction limits or prohibits sale), this Statement establishes the general principle that the fair value of the security should be measured based on the quoted price for an otherwise identical unrestricted security of the same issuer, adjusted as appropriate for the effect of the restriction. That general principle applies even if the restriction terminates within one year, as is the case for restricted stock measured at fair value under FASB Statement No. 115, Accounting for Certain Investments in Debt and Equity Securities. This Statement expands disclosures about the use of fair value to remeasure assets and liabilities recognized in the statement of financial position. The disclosures focus on the inputs used to measure fair value and the effects of the measurements on income (or changes in net assets) for the period. This Statement encourages entities to combine the fair value information disclosed under this Statement with the fair value information disclosed under other accounting pronouncements, including FASB Statement No. 107, Disclosures about Fair Value of Financial Instruments, where practicable.
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How the Conclusions in This Statement Relate to the FASB’s Conceptual Framework The framework for measuring fair value considers the concepts in FASB Concepts Statement No. 2, Qualitative Characteristics of Accounting Information, which emphasizes that providing comparable information enables users of financial statements to identify similarities in and differences between two sets of economic events. The definition of fair value considers the concepts relating to assets and liabilities in FASB Concepts Statement No. 6, Elements of Financial Statements, which defines assets in terms of future economic benefits (future inflows) and liabilities in terms of future sacrifices of economic benefits (future outflows). The guidance for applying the definition of fair value incorporates the related concepts in FASB Concepts Statement No. 7, Using Cash Flow Information and Present Value in Accounting Measurements. In particular, Concepts Statement 7 establishes that the most relevant measure of a liability always reflects the credit standing of the entity obligated to pay. In addition, this Statement incorporates and clarifies the guidance in Concepts Statement 7 for using present value techniques to measure fair value. The clarifications do not substantively change that guidance in Concepts Statement 7 or the application of that guidance under existing accounting pronouncements. Therefore, this Statement does not revise Concepts Statement 7. The Board will consider the need to revise Concepts Statement 7 in its conceptual framework project. The expanded disclosures consider the need to provide information about the use of fair value to remeasure assets and liabilities that is useful to users of financial statements (present and potential investors, creditors, and others in making rational investment, credit, and similar decisions)—the first objective of financial reporting in FASB Concepts Statement No. 1, Objectives of Financial Reporting by Business Enterprises.
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How the Changes in This Statement Improve Financial Reporting A single definition of fair value, together with a framework for measuring fair value, should result in increased consistency and comparability in fair value measurements. The expanded disclosures about the use of fair value to remeasure assets and liabilities should improve the quality of information provided to users of financial statements. The amendments made by this Statement advance the Board’s initiatives to simplify and codify the accounting literature, eliminating differences that have added to the complexity in GAAP. Costs and Benefits of Applying This Statement Although the framework for measuring fair value builds on current practice and requirements, some entities will need to make systems and other changes to comply with the requirements of this Statement, thereby incurring one-time costs. However, the benefits from increased consistency and comparability in fair value measurements and expanded disclosures about those measurements should be ongoing. The Effective Date of This Statement This Statement is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. Earlier application is encouraged, provided that the reporting entity has not yet issued financial statements for that fiscal year, including any financial statements for an interim period within that fiscal year. The provisions of this Statement are to be applied prospectively (similar to a change in accounting estimate), except as follows. The change in method for measuring the fair value of a block is to be applied retrospectively to all prior periods (similar to a change in accounting principle).
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Statement of Financial Accounting Standards No. 15X Fair Value Measurements June XX, 2006 CONTENTS Paragraph Numbers Objective..........................................................................................................................1 Standards of Financial Accounting and Reporting: Scope.......................................................................................................................2–4 Measurement.........................................................................................................5–30 Definition of Fair Value..................................................................................5–13 The Asset or Liability.....................................................................................6 The Price.....................................................................................................7–9 The Transaction............................................................................................10 Market Participants.......................................................................................11 Application to Assets..............................................................................12–14 Application to Liabilities..............................................................................15 Fair Value at Initial Recognition and in Subsequent Periods.......................16–18 Valuation Techniques...................................................................................19–21 Fair Value Hierarchy.....................................................................................22–30 Level 1 Inputs.........................................................................................24–27 Blocks of Financial Instruments.............................................................27 Level 2 Inputs.........................................................................................28–29 Level 3 Inputs...............................................................................................30 Market Inputs Quoted Based on Bid and Asked Prices................................31 Disclosures..........................................................................................................32–35 Effective Date and Transition.............................................................................36–38
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Appendix A: Present Value Techniques......................................................................A1− Appendix B: Implementation Guidance......................................................................B1− Appendix C: Background Information and Basis for Conclusions.............................C1− Appendix D: Amendments to Existing APB and FASB Pronouncements..................D1− Appendix E: Amendments to Existing AICPA Pronouncements................................E1− Appendix F: References to Existing APB and FASB Pronouncements......................F1− vi
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Statement of Financial Accounting Standards No. 15X Fair Value Measurements June XX, 2006 OBJECTIVE 1. This Statement defines fair value, establishes a framework for measuring fair value under accounting pronouncements that require fair value measurements, and enhances disclosures about fair value measurements. Where applicable, this Statement simplifies and codifies related guidance within generally accepted accounting principles (GAAP). STANDARDS OF FINANCIAL ACCOUNTING AND REPORTING Scope 2. This Statement applies under accounting pronouncements1 that require fair value measurements, except as follows: a. This Statement does not apply under accounting pronouncements that address share-based payment transactions: FASB Statement No. 123 (revised 2004), Share-Based Payment, and its related interpretive accounting pronouncements (see Appendix F to Statement 123(R)). b. This Statement does not eliminate the practicability exceptions to fair value measurements in accounting pronouncements within the scope of this Statement.2 1This Statement uses the term accounting pronouncements consistent with its use in FASB Statement No. 154, Accounting Changes and Error Corrections, paragraph 2(b). 2Accounting pronouncements that permit practicability exceptions to fair value measurements in specified circumstances include APB Opinion No. 29, Accounting for Nonmonetary Transactions, FASB Statements No. 87, Employers’ Accounting for Pensions, No. 106, Employers’ Accounting for Postretirement Benefits Other Than Pensions, No. 107, Disclosures about Fair Value of Financial Instruments, No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, and No. 153, Exchanges of Nonmonetary Assets, and FASB Interpretation No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. Also included among those pronouncements are EITF Issues No. 85-40, “Comprehensive Review of Sales of Marketable Securities with Put Arrangements,” and No. 99-17, “Accounting for Advertising Barter Transactions.” 1
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3. This Statement does not apply under accounting pronouncements that require measurements that are similar to fair value but that are not intended to measure fair value, including the following: a. Accounting pronouncements that address revenue transactions measured using vendor-specific objective evidence (VSOE) of fair value3 b. ARB No. 43, Chapter 4, “Inventory Pricing.” 4. Appendix F lists pronouncements of the Accounting Principles Board (APcool smiley and the FASB existing at the date of this Statement that are within the scope of this Statement. Appendix D lists APB and FASB pronouncements that are amended by this Statement. Appendix E lists AICPA pronouncements that are amended by this Statement. Measurement Definition of Fair Value 5. Fair value is the price that would be received for an asset or paid to transfer a liability in a transaction between market participants at the measurement date. The Asset or Liability 6. A fair value measurement is for a particular asset or liability, considering its condition and/or location at the measurement date. In some cases, the asset or liability measured at fair value might be a standalone asset or liability, for example, a financial instrument, an operating asset that is separable or substitutable with other equivalent assets, or a performance obligation. In other cases, the asset or liability measured at fair value might be a group of assets and/or liabilities, for example, an operating asset that is not separable or substitutable with other equivalent assets, a reporting unit, or a business. Whether the asset or liability measured at fair value is a standalone asset or liability or a group of assets and/or liabilities depends on its unit of account. The unit of account refers
3Accounting pronouncements that address revenue transactions measured using VSOE of fair value are AICPA Statement of Position 97-2, Software Revenue Recognition, as modified by AICPA Statement of Position 98-9, Modification of SOP 97-2, Software Revenue Recognition, With Respect to Certain Transactions, and EITF Issues No. 00-3, “Application of AICPA Statement of Position 97-2 to Arrangements That Include the Right to Use Software Stored on Another Entity’s Hardware,” and No. 00-21, “Revenue Arrangements with Multiple Deliverables.” 2
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to the level at which the asset or liability measured at fair value is aggregated (or disaggregated) for purposes of applying other applicable accounting pronouncements.4 The Price 7. When measuring the fair value of the asset or liability, the objective is to determine the price that would be received for the asset or paid to transfer the liability in a transaction between market participants to sell or otherwise dispose of the asset or transfer the liability, assuming that the transaction occurs at the measurement date. In other words, the price used to measure fair value is an exit price considered from the perspective of a market participant (seller) that holds the asset or liability. Therefore, a fair value measurement shall include all of the assumptions that market participants would use in pricing the asset or liability. In determining whether all market participant assumptions are included in the measurement, the reporting entity shall consider factors specific to the asset or liability, including the extent to which the measurement is based on unobservable market inputs and any pricing adjustments a market participant (buyer) would demand to assume the related risk. 8. A fair value measurement assumes an orderly transaction between market participants in the principal market for the asset or liability. The principal market is the market in which the reporting entity would sell or otherwise dispose of the asset or transfer the liability with the greatest volume and level of activity for the asset or liability. If there are multiple markets for the asset or liability with different prices and no single market represents a principal market, the fair value measurement assumes an orderly transaction in the most advantageous market for the asset or liability. The most advantageous market is the market in which the reporting entity would sell or otherwise dispose of the asset or transfer the liability with the price that maximizes the amount that would be received for the asset or minimizes the amount that would be paid to transfer the liability. In either case, the appropriate market is considered from the perspective of the
4 Except as otherwise specified in paragraph 27, the unit of account for an asset or liability measured at fair value should be determined in accordance with the provisions of other applicable accounting pronouncements.
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reporting entity that holds the asset or liability, thereby allowing for differences between and among entities and the markets in which those entities transact. 9. The price in the principal (most advantageous) market used to measure the fair value of the asset or liability shall not include transaction costs (the incremental direct costs to transact in that market).5 Transaction costs are not an attribute of the asset or liability (they are an attribute of the transaction).6 However, in situations in which the location of an asset or liability is an attribute of the asset or liability (for example, a commodity), the price in the principal (most advantageous) market used to measure the fair value of the asset or liability shall include transportation costs (the costs to access that market). The Transaction 10. An orderly transaction to sell or otherwise dispose of the asset or transfer the liability at the measurement date is a transaction that allows for exposure to the market for a period prior to the measurement date that is usual and customary for transactions involving such assets or liabilities and reflects market conditions existing at the measurement date. Until the asset is sold or otherwise disposed of or the liability is transferred in an actual transaction involving the reporting entity, the fair value of the asset or liability is measured by reference to a hypothetical transaction between market participants to sell or otherwise dispose of the asset or transfer the liability at the measurement date, without regard to the reporting entity’s intent to enter into such a transaction at that date.
5Incremental direct costs refer to costs that result directly from and are essential to a transaction involving an asset (or liability) and that would not have been incurred by the reporting entity had the decision to sell or otherwise dispose of the asset (or transfer the liability) not been made (similar to cost to sell, as defined in paragraph 35 of FASB Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets). 6Transaction costs should be accounted for in accordance with the provisions of other applicable accounting pronouncements.
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Market Participants 11. Market participants are buyers and sellers in the principal (most advantageous) market for the asset or liability that are: a. Independent of the reporting entity, that is, they are not related parties7 b. Knowledgeable, having a reasonable understanding about factors relevant to the asset or liability and the transaction based on all available information, including information obtained through due diligence efforts c. Able to transact for the asset or liability, having the legal and financial ability to do so d. Willing to transact for the asset or liability, that is, they are motivated but not forced or otherwise compelled to do so. Application to Assets 12. For an asset, a fair value measurement assumes the highest and best use of the asset from the perspective of market participants. In broad terms, highest and best use refers to the use of an asset by some (two or more) market participants that would maximize the fair value of the asset in a hypothetical transaction to sell or otherwise dispose of the asset at the measurement date, and is determined without regard to the intended use of the asset by the reporting entity. 13. The highest and best use of an asset establishes the valuation premise used to measure the fair value of the asset. Specifically: a. If the highest and best use of an asset is in-use, fair value shall be measured using an in-use valuation premise (fair value in-use). The highest and best use of an asset is in-use if some market participants would use the asset as it is currently installed or otherwise configured for use and that use of the asset would maximize its fair value. In that case, the asset is not separable or substitutable with other equivalent assets (the hypothetical transaction between market participants to sell or otherwise dispose of the asset at the measurement date involves an asset group that is in-use).
7This Statement uses the term related parties consistent with its use in FASB Statement No. 57, Related Party Disclosures.
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b. If the highest and best use of an asset is in-exchange, fair value shall be measured using an in-exchange valuation premise (fair value in-exchange). The highest and best use of an asset is in-exchange if some market participants would not use the asset as it is currently installed or otherwise configured for use and the exchange of the asset would maximize its fair value. In that case, the asset is separable or substitutable with other equivalent assets (the hypothetical transaction between market participants to sell or otherwise dispose of the asset at the measurement date involves a standalone asset). 14. Because the highest and best use of an asset is considered from the perspective of market participants, the measurement considers the related assumptions that market participants would use in pricing the asset, whether using an in-use or an in-exchange valuation premise. Application to Liabilities 15. For a liability, a fair value measurement assumes that the liability is transferred to a market participant of comparable credit standing that would similarly perform (or similarly bear the consequences of not performing). Therefore, the reporting entity shall consider the effect of its credit standing on the fair value of the liability in all periods in which the liability is measured at fair value. The effect will differ depending on the liability, for example, whether the liability is an obligation to deliver cash or to otherwise perform, and the terms of any credit enhancements included in the contract for the liability. Fair Value at Initial Recognition and in Subsequent Periods 16. In situations in which an asset is acquired or a liability is assumed in an exchange transaction, the transaction price represents the price paid for the asset or received to assume the liability (an entry price). In contrast, the fair value of the asset or liability represents the price that would be received for the asset or paid to transfer the liability (an exit price). Conceptually, those prices are different. Entities do not necessarily sell or otherwise dispose of assets at the prices paid to acquire them. Similarly, entities do not necessarily transfer liabilities at the prices received to assume them. However, in many situations, the transaction price will represent the fair value of the asset or liability at initial recognition.
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17. In determining whether a transaction price represents the fair value of the asset or liability at initial recognition, the reporting entity shall consider factors specific to the transaction and the asset or liability, including the following: a. Whether the transaction is between related parties. b. Whether the transaction occurs under duress or the seller is forced to accept the price in the transaction because of urgency. That would be the case if, for example, the transaction is a forced liquidation or distress sale where a particular entity is experiencing financial difficulty. c. Whether the unit of account represented by the transaction price is different from the unit of account for the asset or liability measured at fair value. That would be the case if, for example, the transaction is a multiple element transaction and the asset or liability measured at fair value is only one of the elements in the transaction, the transaction includes unstated rights and privileges that should be separately measured, or the transaction price includes transaction costs. d. Whether the market in which the transaction occurs is different from the principal (most advantageous) market in which the reporting entity would sell or otherwise dispose of the asset or transfer the liability. 18. In periods subsequent to initial recognition in which an asset or liability is remeasured at fair value, the measurement shall consider changes in the market and other relevant factors (for example, a change in the condition and/or location of the asset or liability) since the previous measurement. Valuation Techniques 19. Valuation techniques used to measure fair value shall be consistent with the market approach, income approach, and/or cost approach. Key aspects of those approaches are summarized below: a. The market approach uses observable prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities (including a business). The measurement is based on the value indicated by those market transactions.
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b. The income approach uses valuation techniques to convert future amounts (for example, cash flows or earnings) to a single present amount (discounted). The measurement is based on the value indicated by market expectations about those future amounts. Those valuation techniques include present value techniques; option-pricing models, such as the Black-Scholes-Merton formula (a closed-form model) and a binomial model (a lattice model), which incorporate present value techniques; and the multi-period excess earnings method, a discounted cash flow method used to measure the fair value of certain intangible assets. c. The cost approach is based on the amount that currently would be required to replace the service capacity of an asset (often referred to as current replacement cost). From the perspective of a market participant (seller), the measurement assumes that the price that would be received for the asset would not exceed the cost to a market participant (buyer) to acquire or construct a substitute asset of comparable utility, adjusted for obsolescence. Obsolescence encompasses physical deterioration, functional (technical) obsolescence, and economic (external) obsolescence and is broader than depreciation for financial reporting purposes (an allocation of historical cost) or tax purposes (based on specified service lives). 20. Valuation techniques that are appropriate in the circumstances and for which sufficient market data are available shall be used to measure fair value. In some cases, a single valuation technique will be appropriate. In other cases, multiple valuation techniques will be appropriate. When multiple valuation techniques are used to measure fair value, the results (respective indications of fair value) shall be evaluated and weighted, as appropriate, in determining fair value. 21. Valuation techniques used to measure fair value shall be consistently applied. However, a change in a valuation technique or its application (for example, a change in its weighting when multiple valuation techniques are used) is appropriate if the change results in a measurement that is more representative of fair value in the circumstances. That might be the case as new markets develop, new information becomes available, or valuation techniques improve. Revisions resulting from a change in the valuation technique or its application shall be accounted for in (a) the period of change if the change affects that period only or (b) the period of change and future periods if the change affects both, that is, as changes in accounting estimates (FASB Statement No. 154, Accounting Changes and Error Corrections, paragraph 19). The disclosure requirements of Statement 154 for a change in accounting estimate do not apply for revisions resulting from a change in a valuation technique or its application. 8
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Fair Value Hierarchy 22. The fair value hierarchy prioritizes the market inputs to valuation techniques used to measure fair value into three broad levels, providing a framework for related disclosures (paragraphs 32–35).8 Market inputs refer broadly to the assumptions that market participants would use in making pricing decisions. Market inputs are either observable or unobservable. Observable market inputs refer to inputs developed based on market data obtained from sources independent of the reporting entity. Unobservable market inputs refer to inputs that reflect the reporting entity’s assumptions of market inputs, developed based on its own data, adjusted to exclude factors specific to the reporting entity if information is available that indicates that market participants would exclude those factors. Valuation techniques used to measure fair value shall maximize the use of observable market inputs and minimize the use of unobservable market inputs, whether using the market approach, income approach, and/or cost approach. 23. In some cases, the inputs used to measure fair value might fall within different levels of the fair value hierarchy. Where within the fair value hierarchy the fair value measurement in its entirety falls shall be determined based on the lowest level input that is significant to the fair value measurement.
8 The availability of market inputs relevant to the asset or liability and the relative reliability of the inputs may affect the selection of appropriate valuation techniques. However, the fair value hierarchy focuses on the market inputs to valuation techniques, not the valuation techniques themselves.
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Level 1 Inputs 24. Level 1 inputs are observable market inputs that reflect quoted prices for identical assets or liabilities in active markets the reporting entity has the ability to access at the measurement date. In an active market (for example, an active exchange market),9 transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis (a quoted price in that market will be both readily available and representative of fair value). Therefore, a quoted price for an identical asset or liability in an active market provides the most reliable evidence of fair value and shall be used to measure fair value whenever available, except as discussed in paragraphs 25 and 26. 25. If the reporting entity holds a large number of similar assets or liabilities that are required to be measured at fair value, a quoted price in an active market might be available but not readily accessible for each of those assets or liabilities (for example, from pricing services or individual broker-dealers). In that case, fair value may be measured using an alternative pricing method (for example, matrix pricing) as a practical expedient, provided that the method is demonstrated to replicate actual prices. However, the use of an alternative pricing method renders the fair value measurement a Level 2 measurement. 26. In some situations, a quoted price might not be representative of fair value at the measurement date (stale price). That might be the case if, for example, significant events (principal-to-principal transactions, brokered trades, or announcements) occur after the close of a market but before the measurement date. The reporting entity need not undertake all possible efforts to obtain information about after-hours trading. However, the reporting entity should not ignore information that is available at the reporting date (for example, a large change in the price in another market after the close of the principal market in which the asset or liability trades). The reporting entity should establish and
9An active exchange market provides high visibility and order to the trading of financial instruments. Typically, closing prices are both readily available and representative of fair value. An example of such a market is the New York Stock Exchange.
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consistently apply a policy for determining how those events affect fair value measurements. Blocks of financial instruments 27. If the reporting entity holds a large position of a financial instrument (block) and the instrument is traded in an active market, the fair value of the block shall be measured within Level 1 as the product of the quoted price for an individual trading unit times the quantity held. The quoted price shall not be adjusted by a blockage factor, that is, a discount (or premium) based on the size of the block relative to trading volume, even if a market’s normal daily trading volume is not sufficient to absorb the quantity held and placing orders to sell the block in a single transaction might affect the quoted price.10 Level 2 Inputs 28. Level 2 inputs are observable market inputs other than quoted prices for identical assets or liabilities in active markets the reporting entity has the ability to access at the measurement date. Level 2 inputs include the following: a. Quoted prices for similar assets or liabilities in active markets b. Quoted prices for identical or similar assets or liabilities in markets that are not active, that is, a market in which there are few transactions for the asset or liability, the prices are not current, or price quotations vary substantially either over time or among market makers (for example, some brokered markets)11 or in which little information is released publicly (for example, a principal-to-principal market)12 c. Market inputs other than quoted prices that are directly observable for the asset or liability, for example, interest rates, yield curves, volatilities, and default rates that are observable at the commonly quoted intervals
10The guidance in this Statement applies for blocks of financial instruments held by all entities, including broker-dealers and investment companies within the scope of the AICPA Audit and Accounting Guides for those industries. 11In a brokered market, brokers attempt to match buyers with sellers but do not stand ready to trade for their own account. In other words, brokers do not use their own capital to hold an inventory of the items for which they make a market. The broker knows the prices bid and asked by the respective parties, but each party is typically unaware of another party’s price requirements. Prices of completed transactions are sometimes available. Brokered markets include electronic communication networks, in which buy and sell orders are matched, and commercial and residential real estate markets, 12In a principal-to-principal market, principal-to-principal transactions, both originations and resales, are negotiated independently with no intermediary. Little information about those transactions may be released publicly.
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d. Market inputs that are not directly observable for the asset or liability but that are derived principally from or corroborated by other observable market data through correlation or by other means (market-corroborated inputs), for example, inputs derived through extrapolation or interpolation that are corroborated by other observable market data. 29. Adjustments to market inputs within Level 2 shall consider factors specific to the transaction and/or asset or liability, including the condition and/or location of the asset or liability at the measurement date. An adjustment that is significant to the fair value measurement in its entirety might render the measurement a Level 3 measurement, depending on where within the fair value hierarchy the inputs used to determine the adjustment fall. Level 3 Inputs 30. Level 3 inputs are unobservable market inputs, for example, inputs derived through extrapolation or interpolation that are not able to be corroborated by observable market data. Unobservable market inputs shall be used to measure fair value if observable market inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability. However, the fair value measurement objective remains the same, that is, an exit price from the perspective of a market participant (seller). Therefore, a fair value measurement using unobservable market inputs within Level 3 shall consider the assumptions that market participants would use in pricing the asset or liability, including assumptions about the amount a market participant (buyer) would demand to assume the risk related to the unobservable market inputs used to measure fair value. The reporting entity’s own data used to develop the inputs shall be adjusted to exclude factors specific to the reporting entity if information is available that indicates that market participants would use different assumptions.
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Market Inputs Quoted Based on Bid and Asked Prices 31. If a market input is based on bid and asked prices (for example, in a dealer market),13 the fair value measurement shall represent the price within the bid-asked spread that would be received for the asset or paid to transfer the liability in a transaction between market participants at the measurement date. This Statement does not preclude the use of mid-market pricing or other pricing conventions, consistently applied, as a practical expedient for fair value measurements using bid and asked prices. For offsetting positions in the same instrument, the same price shall be used to measure the fair value of both the long and short positions. Disclosures 32. The reporting entity shall disclose information that enables users of its financial statements to assess the extent to which fair value is used to remeasure assets and liabilities recognized in the statement of financial position and the inputs used to develop the measurements. To meet that objective, the reporting entity shall disclose the following information for each interim and annual period for which a statement of financial position is presented (except as otherwise specified), separately for each major category of assets and liabilities: a. For assets and liabilities that are remeasured at fair value on a recurring basis (for example, trading securities), the total fair value measurements at the reporting date b. For assets and liabilities that are remeasured at fair value on a nonrecurring basis (for example, impaired assets), the fair value measurements and the reason(s) for the measurements c. Where within the fair value hierarchy the fair value measurements in (a) and (b) above in their entirety fall, segregating those fair value measurements that fall within Level 1, Level 2, and Level 3 d. For annual periods only, the valuation technique(s) used for the fair value measurements in (a) and (b) above.
13In a dealer market, dealers stand ready to trade (either buy or sell for their own account), thereby providing liquidity by using their capital to hold an inventory of the items for which they make a market. Typically, bid and asked prices (representing the price the dealer is willing to pay and the price at which the dealer is willing to sell, respectively) are more readily available than closing prices. Over-the-counter (OTC) markets (where prices are publicly reported by the National Association of Securities Dealers Automated Quotations systems or by PinkSheets LLC) are dealer markets. For example, the market for U.S. Treasury securities is a dealer market. Dealer markets also exist for other assets and liabilities, such as financial instruments, commodities, and physical assets (for example, certain used equipment).
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33. The reporting entity shall disclose information that enables users of its financial statements to assess the effects of fair value remeasurements on income (or changes in net assets) for the period. To meet that objective, the reporting entity shall disclose the following information for each interim and annual period for which a statement of financial performance is presented: a. Total gains or losses (realized and unrealized) for the period relating to each major category of assets and liabilities remeasured at fair value on a recurring basis, segregating those gains or losses included in other comprehensive income, even if those assets and liabilities are not still held at the reporting date. Total gains or losses shall be presented separately (gross) for assets and liabilities remeasured at fair value if the related assets and liabilities are reported separately (gross) in the statement of financial position. b. The change in unrealized gains or losses during the period relating to assets and liabilities remeasured at fair value during the period that are still held at the reporting date if the measurements in their entirety fall within Level 3. 34. The quantitative disclosures required by this Statement shall be presented using a tabular format. (See Appendix B.) 35. The fair value information disclosed under this Statement shall be combined and disclosed together with the fair value information disclosed under other accounting pronouncements (for example, FASB Statement No. 107, Disclosures about Fair Value of Financial Instruments) in the periods in which those disclosures are required, if practicable. Disclosures about other similar remeasurements (for example, inventories remeasured at “market value” under ARB 43, Chapter 4) are encouraged but not required. Effective Date and Transition 36. This Statement shall be effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. Earlier application is encouraged, provided that the reporting entity has not yet issued financial statements for that fiscal year, including any financial statements for an interim period within that fiscal year. 37. This Statement shall be applied prospectively as of the first interim period for the fiscal year in which this Statement is initially applied, except as follows. Paragraph 27 of
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FVM WORKING DRAFT—REVISED 3/15/06
this Statement (blocks) shall be applied retrospectively to all prior periods. The cumulative effect of that change in accounting principle on periods prior to those presented shall be reflected as of the beginning of the first period presented. An offsetting adjustment shall be made to the opening balance of retained earnings for that period. 38. The disclosure requirements of this Statement (paragraphs 32–35), including those disclosures that are required in annual periods only, shall be applied in the first interim period of the fiscal year in which this Statement is initially applied. The disclosure requirements of this Statement need not be applied for financial statements for periods presented prior to initial application of this Statement. The provisions of this Statement need not be applied to immaterial items. 15
25.04.2006, 07:10
Я тоже плачу...
Офицер ФСБ (6e582)
25.04.2006, 11:40
Stop crying! Take it easy!
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