Statement of Financial Accounting Standards No. 157 - Paper Audit ...

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expected present value technique often will be the appropriate valuation technique if a liability for a cost associated with an exit or disposal activity has uncertainties in both the amount and timing of estimated cash flows. 14 Paragraph 23 of Concepts Statement 7 discusses the essential elements of a present value measurement. 15 When using an expected present value technique, the effect of an entity’s credit standing can be reflected in either the discount rate or the estimated cash flows. However, it is usually easier and less complex to reflect that adjustment in the discount rate. d. Paragraph A5 and its related footnote 16: When using a present value technique, estimates of future cash flows should incorporate assumptions that marketplace participants would use in their estimates of fair value whenever that information is available without undue cost and effort. Otherwise, an entity may use its own estimates of future cash flows. 16 16 Paragraph 38 of Concepts Statement 7 explains: As a practical matter, an entity that uses cash flows in accounting measurements often has little or no information about some or all of the assumptions that marketplace participants would use in assessing the fair value of an asset or a liability. In those situations, an entity must necessarily use the information that is available without undue cost and effort in developing cash flow estimates. The use of an entity’s own assumptions about future cash flows is compatible with an estimate of fair value, as long as there are no contrary data indicating that marketplace participants would use different assumptions. If such data exist, the entity must adjust its assumptions to incorporate that market information. E26. FASB Statement No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity, is amended as follows: a. Paragraph D1 (glossary): Fair value The amount at which an asset (liability) could be bought (incurred) or sold (settled) in a current transaction between willing parties, that is, other than in a forced or liquidation sale. Additional guidance on determining fair value is provided in other FASB Statements and FASB Concepts Statements. 140
E27. FASB Statement No. 156, Accounting for Servicing of Financial Assets, is amended as follows: a. Paragraph 3(c): Fair value See paragraphs 68−70 of Statement 140. E28. FASB Interpretation No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, is amended as follows: a. Paragraph 9(a): When a guarantee is issued in a standalone arm’s-length transaction with an unrelated party, the liability recognized at the inception of the guarantee should be the premium received or receivable by the guarantor as a practical expedient. b. Paragraph 9(b): When a guarantee is issued as part of a transaction with multiple elements with an unrelated party (such as in conjunction with selling an asset or entering into an operating lease), the liability recognized at the inception of the guarantee should be an estimate of the guarantee’s fair value. In that circumstance, guarantors should consider what premium would be required by the guarantor to issue the same guarantee in a standalone arm’s-length transaction with an unrelated party as a practical expedient. In the absence of observable transactions for identical or similar guarantees, expected present value measurement techniques as set forth in FASB Concepts Statement No. 7, Using Cash Flow Information and Present Value in Accounting Measurements, will likely provide the best estimate of fair value. Concepts Statement 7 states in its glossary that “expected present value refers to the sum of the probability-weighted present values in a range of estimated cash flows, all discounted using the same interest rate convention.” The general principles in paragraph 41 of Concepts Statement 7 are also relevant. 141
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Financial Accounting Series NO. 284
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Summary This Statement defines fair
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(blockage factor). This Statement e
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instruments as of the beginning of
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Copyright © 2006 by Financial Acco
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Statement of Financial Accounting S
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disaggregated) for purposes of appl
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Application to Assets 12. A fair va
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of the elements in the transaction,
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paragraph 19). The disclosure provi
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sufficient to absorb the quantity h
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c. For fair value measurements usin
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38. At the date this Statement is i
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A3. The judgments applied in differ
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include those buyers that initially
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participants have technology in a m
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elevant data points in the market a
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in the fair value hierarchy within
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the one- and two-year options on th
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tions in which the price in a trans
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higher of its fair value in-use as
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measure fair value are required in
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Assets Measured at Fair Value on a
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d. The price for bearing the uncert
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liability being measured, it may be
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cash flows, it likely will be highe
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Appendix C BACKGROUND INFORMATION A
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Appendix C BACKGROUND INFORMATION A
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Scope Share-Based Payment Transacti
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epresent the fair value of the inst
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C20. Accordingly, the guidance for
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clearly, the Board revised the defi
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or liability (for example, a commod
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Application to Liabilities C39. For
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whether changes in a debtor’s cre
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entity’s credit standing makes th
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Valuation Techniques C53. This Stat
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C60. In its discussions, the Board
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generally provide the most reliable
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not sufficient to absorb the quanti
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similar guidance in paragraph AG72,
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that indicates that market particip
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asset or liability. The Board concl
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alone, would not be cost beneficial
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in the statement of financial posit
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adjustment to the opening balance o
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International Financial Reporting S
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Pronouncement Statement 65* Stateme
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Page 114 and 115: cost or marketfair value for each t
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Page 124 and 125: . Paragraph 112 (glossary), as amen
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Page 130 and 131: value of an asset (or liability) in
Page 132 and 133: securities. An acquiring entity oft
Page 134 and 135: as the basis for the measurement, i
Page 136 and 137: of those cash flows that are embodi
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Page 142 and 143: Date Incurred 12/31/03 12/31/04 12/
Page 144 and 145: market prices in active markets are
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Page 148 and 149: i. Paragraph A13: The following tab
Page 150 and 151: accordance with paragraph 7, the en
Page 154 and 155: E29. Statement 133 Implementation I
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