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Portfolio > Alternative Investments

FASB Starts Fair Value Project

By Staff Writer

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The Financial Accounting Standards Board is taking another look at how companies should value investments.

FASB, Norwalk, is starting an effort to revise the guidance used to implement fair value accounting rules.

FASB also is starting an effort to revise fair value estimate disclosure rules, FASB officials say.

FASB is reacting to a U.S. Securities and Exchange Commission report and feedback from a FASB advisory group, FASB officials say.

Critics of the fair value accounting rules say they force too many companies, including insurers, to record fluctuations in asset values in ways that distort financial statements, by treating long-term investments as if they were being sold through a fire sale.

Fair value accounting defenders argue that the rules help give investors, regulators and others a clear idea of how companies stand at a particular point in time.

The SEC recommended that FASB keep current fair value accounting requirements but improve specific practices related to the requirements, FASB officials say.

The FASB advisory group, the Valuation Resource Group, also agreed that FASB needs to provide more advice about how to apply fair value accounting principles, officials say.

The individuals involved in the new FASB fair value accounting application project will look at the procedures for determining when a market for an asset or a liability is active or inactive, determining when a transaction is distressed, and applying fair value to interests in alternative investments, such as hedge funds and private equity funds, officials say.

The individuals working on the fair value measurement disclosure project will look into requiring more disclosures on matters such as sensitivity of measurements to small changes in key variables and transfers of securities between categories, officials say.

FASB hopes to complete the application guidance project by June 30 and the disclosure project in time for year-end financial reporting, officials say.

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