FASB Exposure Draft Examines Fair Value Measures

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August 25, 2004

FASB released an exposure draft of a proposed statement that would provide guidance for how to measure fair value. Its guidance would establish a framework for measuring assets and liabilities at fair value. In doing so, it would supersede the fair value measurement guidance in FASB Statement No. 116, Accounting for Contributions Received and Contributions Made; FASB Statement No. 124, Accounting for Certain Investments Held by Not-for-Profit Organizations; FASB Statement No. 136, Transfers of Assets to a Not-for-Profit Organization or Charitable Trust That Raises or Holds Contributions for Others; as well as more than 30 other statements.

The proposed statement would establish a three-level hierarchy of methods for determining fair value. The highest level (level 1) would be use of quoted prices for identical assets or liabilities in active reference markets. If those prices are not available, fair value would be estimated using quoted prices for similar assets or liabilities in active markets, adjusted as appropriate for differences between the asset or liability being measured and the reference asset or liability (level 2). If level 1 and 2 methods cannot be used because information is unavailable, fair value would be estimated by using valuation techniques consistent with the market approach, income approach, and cost approach. Key aspects of those three approaches are summarized in the draft.

The exposure draft can be downloaded from FASB's Web site. Comments are due by September 7.

NACUBO staff resource: Sue Menditto, director, accounting policy, sue.menditto@nacubo.org.