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Wiley GAAP 2008 by Colorado Steven M. Bragg Englewood, Ralph Nach American Express Tax and Business Inc., Barry J. Epstein

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Concepts, Rules, and Examples

Fair Value Measurements, Disclosures, and Elections

As early as June 1998, FASB stated in FAS 133 that “Fair value is the most relevant measure for financial instruments and the only relevant measure for derivative instruments.” FASB's work in this area since that time has largely focused on removing the technical barriers and converging with international standards.

In September 2006, it issued FAS 157, Fair Value Measurements, followed in February 2007 by FAS 159, The Fair Value Option for Financial Assets and Financial Liabilities. FAS 157 furthers the cause of fair value by establishing a single definition to replace the disparate definitions that had previously existed throughout GAAP and providing a framework for informing financial statement readers about the source and level of subjectivity (or observability) of the inputs used in the measurement process.

FAS 159 provides management with unprecedented flexibility in electing, on a contract‐by‐contract basis, to use fair value to measure specified financial assets and liabilities in the financial statements of the reporting entity with the effects of changes in fair value being recognized in current earnings (or other performance indicator, as applicable).

Not surprisingly, both new standards contain substantial new disclosure requirements to inform financial statement readers of a myriad of details, to enable assessment of the extent and manner to which fair value measurements are used throughout ...

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