FEI and IMA request deferral of SFAS 157
The Institute of Management Accountants (IMA) has also requested the delay, CFO.com reports.
FASB has added discussion of the delay in implementation of FAS 157 to its agenda for Wednesday, October 17.
The new standard does not require any new fair value measurements but is intended to address the accumulation of more than 40 rules that can currently apply to fair value measurements, according to FASB. In their letter, Arnold C. Hanish, chairman of FEI's Committee on Corporate Reporting, and Karen Rasmussen, chairperson of FEI's Small Public Company Task Force, say that the standard also "amends the definition of fair value in more than 150 EITF issues, AICPA Audit and Accounting Guides, and Statements of Position." They add that "we also do not believe the auditing and valuation professions have internalized the procedures necessary to apply this approach, and they have only recently begun to deal with the myriad of implementation challenges that FAS 157 presents."
According to IMA, CFO.com reports, the new rule will create a "fundamental shift" in accounting teams' thinking and application of fair value: they will need to measure fair value based on the exit price of an asset and a hypothetical third party's (or market participant's) value placed on that asset. "The standard doesn't care what you plan to do with the asset," says Mitch Danaher, an IMA committee member and deputy controller at General Electric.
Hanish and Rasmussen argue that FAS 157 "will have a significantly broader impact than FAS 133 but is equally complex in terms of the level of technical expertise required to comply with its requirements." They say that the early adopters of the standards have been large financial institutions "that deal primarily with financial assets and liabilities and trade in active markets" unlike many of the companies that will be affected by FAS 157.
SFAS No. 159, The Fair Value Option for Financial Assets and Liabilities will also go into effect on November 15. It gives companies the fair value option for measurements of financial assets and liabilities - stocks, bonds, loans, warranty obligations and interest-rate hedges.
Hanish, who is chief accounting officer of Eli Lilly, told a June meeting of the Public Company Accounting Oversight Board's Standing Advisory Group that accounting students aren't learning fair value concepts and the audit industry would not be "up to speed" on fair value measurements for 20 or 30 years, CFO.com reports separately. Hanish suggested that the PCAOB staff work with FASB and draw up examples for a guidance document.
KPMG partner Sam Ranzilla told the PCAOB at the same meeting that audit firms are providing extensive training in fair value, CFO.com reported in June. But Joseph Carcello, director of research for the Corporate Governance Center at the University of Tennessee, said that adding fair value education to accounting programs that currently do not fully address anti-fraud systems and ethics could mean another year of study for accountants.
Hanish and Rasmussen commended the Board in their letter for its recent decision to remove leasing from the scope of FAS 157, but found this an example of the complexity of fair value measurement. "We believe that the interaction between lease accounting and FAS 157 is . . . representative of broader issues with the application of the standard to assets and liabilities for which active markets do not exist."