In the latest proposed Staff Position, FSP FAS 157-f, the Financial Accounting Standards Board (FASB) is providing guidance around issues that have been raised concerning FAS 157. FAS 157 is entitled Fair Value Measurements and FAS 157-f in particular focuses on the measurement of liabilities. FAS 157 defines fair value as, “the price that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date”.
Concerns addressed by this FSP:
1. Transfers to counterparties and FAS 157's assumption that these are not considered settlement of the liability.
2. Non-performance risk being the same before and after transfer when in reality the new obligor may have different risk than the transferee.
3. Lack of observable market information for many liabilities.
4. Contractual restrictions preventing a transfer and its impact on measurement.
5. Liabilities traded in the marketplace as assets.
The comment period for the proposed FSP closes June 1, 2009.
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