Standards of Value: Theory and Applications, 2nd Edition

CHAPTER 6

Fair Value in Financial Reporting

Neil J. Beaton

INTRODUCTION

In May 2003, the Financial Accounting Standards Board (FASB) set forth to provide guidance on fair value in its Board Meeting Minutes (BMM). The BMM was a precursor to adding a fair value measurement project to its agenda in order to address fair value measurement issues broadly, and in June 2004, the FASB issued an Exposure Draft (ED), Fair Value Measurements, based on the BMM and opened such for public comment by constituents. Based on such comments, the FASB issued Statement of Financial Standards (SFAS) No. 157, Fair Value Measurements (SFAS 157), in September 2006, based on the ED and subsequent discussions with various stakeholders including business owner, chief financial officers, accountants, and other interested parties. Further, in July 2009, the FASB issued Accounting Standards Codification (ASC) No. 820, Fair Value Measurement (ASC 820), as part of its codification project that brought together various levels of generally accepted accounting principles (GAAP) into a single, unifying pronouncement. This chapter updates the theory and application of the fair value standard used in the preparation of corporate financial statements since the introduction of ASC 820 (formerly SFAS 157). Although the words are identical, the term fair value is not the same as fair value referred to in dissenters' rights and oppression cases, which is discussed in Chapter 3. The fair value standard in accounting literature ...