The Financial Accounting Standards Board (FASB) said on Monday it will reach out to stakeholders about an accounting standard on fair value measurements, after a recent review of the standard noted that some investors found certain aspects of it challenging.
FASB Statement No. 157, Fair Value Measurements, provides a single definition of fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. It does not change existing US Generally Accepted Accounting Principles (GAAP) requirements that specify which items organizations should measure and report at fair value.
A Financial Accounting Foundation (FAF) post-implementation review (PIR) team concluded last month that the standard generally achieves its purpose and provides investors with decision-useful information, especially the description of the inputs and valuation techniques used to measure fair value.
In a letter dated March 10 to FAF Standard Setting Process Oversight Committee Co-Chairs John Davidson and W. Daniel Ebersole, FASB Chairman Russell Golden said the findings validate the overall strength and integrity of the FASB’s process for setting standards. He added that the FASB will not undertake a comprehensive review of Statement 157.
However, the FAF review team found that some investors had difficulty understanding fair value information provided in financial statements. In addition, there were varying views about the volume and extent of fair value disclosures – some investors felt they were excessive, while others asked for more.
The review team also concluded that Statement 157’s requirements are understandable, can be applied as intended, and allow information to be reported reliably. However, some stakeholders found it difficult to apply certain requirements of the standard for employee benefit plans, not-for-profit organizations, and private companies.
Also, preparers from smaller organizations and private equity firms thought the ongoing costs to comply with Statement 157 were significant – especially the incremental increase in audit fees, audit requirements, and in the use of third-party pricing services and valuation specialists. The review team noted that some of the costs relate to regulatory environment factors arising after Statement 157 was issued by the FASB in 2006, such as the requirements associated with the Sarbanes-Oxley Act, US Securities and Exchange Commission (SEC) reviews, and Public Company Accounting Oversight Board (PCAOB) inspections.
In the letter to the FAF, Golden confirmed that the conflicting or mixed feedback from stakeholders in such areas as the sufficiency and completeness of disclosures and the relevance of Statement 157 to certain types of entities was generally consistent with feedback the FASB has also received.
“In considering this feedback, the FASB plans to conduct research and outreach with stakeholders in connection with in-process projects and initiatives, such as the disclosure framework project, the simplification initiative research project, the research project on accounting issues in employee benefit plan financial statements, and the ongoing involvement of the Private Company Council (PCC) and Not-for-Profit Advisory Committee (NAC),” he wrote.
The PIR team recommended last month that the FASB continue its efforts to summarize and document its cost-benefit considerations and enhancements to user outreach and related documentation.
Golden said the FASB views both of these areas as “critical to the strengthening of the credibility of our due process efforts.”
“After the issuance of Statement 157, the board implemented significant process enhancements in both areas,” he noted in the letter. “Furthermore, the FASB continues to evaluate, consider, and implement ways to better document cost-benefit considerations and stakeholder outreach, consistent with the recommendations by the foundation’s PIR team. Thus, while the FASB has made significant progress in those areas since the issuance of Statement 157, they continue to be focus areas for continuous improvement.”