The Financial Accounting Standards Board (the “FASB”) issued its final staff position “Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active,” FAS 157-3, effective October 10, 2008. FAS 157-3 is substantially similar to the FASB’s proposed interpretative guidance published for comment on October 3, 2008 and discussed in the October 7, 2008 Alert. FAS 157-3 also clarifies, among other things, that determining fair value in a dislocated market depends on facts and circumstances and may require significant judgment about whether individual transactions are forced liquidations or distressed sales. Responding to comments on the proposed interpretative guidance, the FASB also clarified that when distinguishing between an active market and an inactive market, practitioners should (i) look to the market for a particular asset or class of assets being measured rather than the overall market and (ii) consider the factors that characterize an inactive market, such as a decline in the volume and level of activity, prices that are not current, and prices that vary substantially.
Alert October 14, 2008