Linda A. MacDonald of FTI Forensic and Litigation Consulting recently joined FTI after nearly 12 years at the F.A.S.B., where she managed the project that established S.F.A.S. 157. She writes that despite rumors to the contrary, the S.E.C. has not repealed F.A.S. 157.
It is worth noting that F.A.S. 157 is not the reason that in today's markets many assets are impaired. Further, F.A.S. 157 does not require any assets to be recorded at fair value, whether on an ongoing basis (so-called "mark-to-market" accounting) or when impaired.
The fair-value concept was established long before F.A.S. 157 and was referred to in more than 60 of the authoritative pronouncements that were being used by companies when F.A.S. 157 arrived. Many of those pronouncements contained guidelines for determining fair value that were similar to the guidelines in F.A.S. 157 but that were replaced by the new guidelines to improve consistency in application.
With that, conventional wisdom tells us that suspending F.A.S. 157 alone would not do away with fair-value accounting. Fair-value accounting would still be used—but without the new guidelines for determining fair value and without the new disclosures about fair value, which could add to, not reduce, the confusion that currently exists over what fair value is and what fair value means when used in financial reporting today.
The fair-value debate seems certain to continue, having potential implications for the fate of F.A.S. 157. But for now, F.A.S. 157 is holding. So in preparing their financial statements, companies should plan to continue to use the new guidelines (as clarified) for the fair values that are either required or permitted under other authoritative pronouncements.
