06 May 2008

SEC advisory committee takes up fair value accounting

The jury is still out on the absolute merits of fair value accounting for financial statements, a variety of experts told the SEC’s Advisory Committee on Improvements to Financial Reporting in an open meeting on 2 May in Chicago.

The jury is still out on the absolute merits of fair value accounting for financial statements, a variety of experts told the SEC’s Advisory Committee on Improvements to Financial Reporting in an open meeting on 2 May in Chicago.

 

“What are users most interested in?” said one of the participants. “Then there’s the issue of what’s doable. I think we’re finding with [the Financial Accounting Standards Board's (FASB) Statement of Financial Accounting Standards (SFAS) No. 157, Fair Value Measurements] it’s challenging for financial statements.”

 

The subcommittee’s report cautions against expanding the use of fair value in financial reporting until a number of issues are better understood and resolved, including the FASB’s project on the measurement framework, which is looking at developing a consistent approach to determine which measurement attribute should apply to different types of business activities.

 

“What we have proposed is a framework not based on any one asset, we’ve based it on activities,” said Susan Schmidt Bies, the Chair of CIFR's Substantive Complexity Subcommittee and a member of the Federal Reserve Board from December 2001 through March 2007. “We think that’s what users want, and it’s more based on what businesses do, because it asks what is the cash flow recognized in the financial statement and how is that related to what’s going on in the income statement.”

 

The subcommittee report says the SEC should recommend that the FASB “be judicious in issuing new standards and interpretations that expand the use of fair value in areas where it is not already required, until completion of a measurement framework.” 

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