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

Appendix C
BACKGROUND INFORMATION AND BASIS FOR CONCLUSIONS
Introduction
C1. This appendix summarizes considerations that Board members deemed significant
in reaching the conclusions in this Statement. It includes the reasons for accepting
certain views and rejecting others. Individual Board members gave greater weight to
some factors than to others.
Background Information
C2. In many accounting pronouncements, the Board has concluded that fair value
information is relevant, and users of financial statements generally have agreed.
Paragraph 47 of FASB Concepts Statement No. 2, Qualitative Characteristics of
Accounting Information, states, “To be relevant to investors, creditors, and others for
investment, credit, and similar decisions, accounting information must be capable of
making a difference in a decision by helping users to form predictions about the
outcomes of past, present, and future events or to confirm or correct expectations.”
C3. Some have expressed concerns about the ability to apply the fair value measurement
objective in GAAP, including in response to the FASB Proposal, Principles-Based
Approach to U.S. Standard Setting, issued in October 2002. 24 In large part, those
concerns focus on the reliability of the measurements in the absence of quoted market
prices, including concerns about the ability to verify the measurements. Paragraph 59
of Concepts Statement 2 states, “The reliability of a measure rests on the faithfulness
with which it represents what it purports to represent, coupled with an assurance for the
user, which comes through verification, that it has that representational quality.”
C4. The Board believes that, in part, those concerns result because there is limited
guidance for applying the fair value measurement objective in GAAP. The guidance
that currently exists has evolved piecemeal over time and is dispersed among the
accounting pronouncements that require fair value measurements. Differences in that
24 In July 2003, the Securities and Exchange Commission (SEC) published, “Study Pursuant to
Section 108(d) of the Sarbanes-Oxley Act of 2002 on the Adoption by the United States Financial
Reporting System of a Principles-Based Accounting System,” which encouraged a move to more
“objectives-oriented” accounting standards.
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