Financial Accounting Standards Board - FASB Statement No. 107

Discussion in 'Wall St. News' started by ASusilovic, Mar 9, 2009.

  1. February 25, 2009

    VIA Electronic Mail (
    Technical Director
    Financial Accounting Standards Board
    401 Merritt7, P.O. Box 5116
    Norwalk.CT 06856-5116

    File Reference; Proposed FSP FAS 107-b and APB 28-a

    Dear Board Members and FASB Staff:

    The Mortgage Bankers Association1 (MBA) appreciates the opportunity to
    comment on the proposed FASB Staff Position (FSP), Interim Disclosures about
    Fair Value of Financial Instruments (the proposed FSP). The purpose of the
    proposed FSP is to increase the frequency of disclosures about fair value to
    improve the transparency and quality of information provided to users of financial
    FASB Statement No. 107 (Statement 107), Disclosures about Fair Value of
    Financial Instruments, currently requires disclosures about fair value of financial
    instruments in annual financial statements. The proposed FSP would require
    such disclosures to be made in interim financial reports as well.
    The proposed FSP would be effective for interim and annual reporting periods
    ending after March 15, 2009.

    MBA's Comments
    Support of Proposed FSP: MBA recognizes that the proposed FSP will require
    more disclosures under what are already tight reporting deadlines. However,
    given the current hybrid accounting model where some assets and liabilities are
    carried at amortized cost and some at fair value, MBA recognizes users of
    financial statements would be better served having fair value information on an
    interim basis. Since the required disclosures are provided on an annual basis,
    entities should already have infrastructure in place to prepare those disclosures.
    Accordingly, MBA supports the proposed FSP. However, for SEC registrants,
    the interim reporting period is much shorter than the annual reporting period.
    Therefore, MBA asks that FASB continuously keep in mind the shortened interim
    reporting time frame when considering the expansion of annual disclosures to
    interim periods.
    Support for Strategic Review of Fair Value Project: Paragraph 3 in the
    background section of the proposed FSP refers to a recent addition to the FASB
    agenda of a joint project with the International Accounting Standards Board
    (IASB) to address the complexity related to recognition and measurement of
    financial instruments (joint fair value project). MBA recognizes that there is a
    growing conflict of opinion on the usefulness of fair value accounting as now
    envisioned in the accounting rules. Accordingly, MBA strongly supports the joint
    fair value project.
    The MBA appreciates the opportunity to share these comments with the Board.
    Any questions about MBA's comments should be directed to Jim Gross,
    Associate Vice President and Staff Representative to MBA's Financial
    Management Committee, at (202) 557-2860
    John A. Courson
    President and Chief Executive Officer
  2. Question 2: What additional guidance, if any, is needed in the area of
    determining fair value?
    FASB Statement No. 157, Fair Value Measurements, defines fair value as follows:
    Fair value is the price that would be received to sell an asset or paid to
    transfer a liability in an orderly transaction between market participants at
    the measurement date.
    An orderly transaction excludes forced sales and liquidations.
    In its fair value measurement guidance project, the IASB is considering the
    appropriateness of the guidance in Statement 157, but is currently expected to issue final
    guidance that will contain a largely similar current exit price approach to fair value.
    While there are many different views concerning the appropriateness of fair value for
    various types of financial instruments under various scenarios, a number of constituents
    have expressed a desire for (a) additional application guidance for identifying illiquid or
    inactive markets and for determining the impact of liquidity on fair value and (b)
    additional disclosures on how entities have determined fair value in such circumstances.
    Recommendations in this area come from such otherwise divergently-viewed
    constituents, such as Professor Stephen Ryan, the G-30, and the SEC, in their respective

    The IASB recently issued guidance developed by an expert panel that identified issues
    relating to the difficulties of measuring fair value when markets are illiquid. The
    guidance focused on the information that can be used when markets are illiquid and
    emphasized the judgment needed to arrive at the fair value estimate.

    It also identified
    disclosure practices that would provide greater transparency about the use of fair value
    estimates in financial statements. Other efforts in this area by the IASB and the FASB
    were described by Gavin Francis and Russ Golden at the January 20 meeting.

    Another area for which additional guidance has been sought by constituents is contractual
    restrictions on transfer of liabilities. Most indebtedness can only be settled, not
    transferred to third parties. The FASB is currently addressing this matter with proposed
    FASB Staff Position (FSP) FAS 157-c, Measuring Liabilities under FASB Statement No.
    157, which is being redeliberated and is expected to be issued in March 2009.
    The SEC’s Mark-to-Market Report also calls for additional consideration by the FASB of
    a number of other fair value implementation matters. The FASB has vetted these matters
    with its Valuation Resource Group, and recently added short-term projects to consider
    providing additional application guidance on:

    • Determining when a market for an asset or a liability is active or inactive
    • Determining when a transaction is distressed
    • Applying fair value to interests in alternative investments, such as hedge funds
    and private equity funds.

    The FASB also added a short-term project to consider requiring additional disclosures on
    such matters as sensitivities of fair value measurements to key inputs and transfers of
    items between the fair value measurement levels.

    The IASB is monitoring the progress of the FASB’s short-term application and disclosure