The Financial Accounting Standards Board has issued guidance clarifying the
application of FASB Statement No. 157, Fair Value Measurements, in a market that
is not active. FASB Staff Position No. 157-3 (Oct. 10, 2008). FSP FAS 157-3
also provides an example to illustrate key considerations in determining the
fair value of a financial asset when the market for that financial asset is not
active. The guidance is effective upon issuance, including prior periods for
which financial statements have not been issued.

The guidance in the FSP is largely the same as when it was proposed, only a
week ago, as FASB Staff Position 157-d. The major change is additional guidance
in applying the principle that, in situations in which there is little, if any,
market activity for an asset at the measurement date, the fair value measurement
objective remains the same, that is, the price that would be received by the
holder of the financial asset in an orderly transaction (an exit price notion)
that is not a forced liquidation or distressed sale at the measurement date:

Even in times of market
dislocation, it is not appropriate to
conclude that all market activity represents
forced liquidations or distressed sales.
However, it is also not appropriate to
automatically conclude that any transaction
price is determinative of fair value.
Determining fair value in a dislocated
market depends on the facts and
circumstances and may require the use
of significant judgment about whether
individual transactions are forced
liquidations or distressed sales.

FSP FAS 157-3 is available online at

http://www.fasb.org/pdf/fsp_fas157-3.pdf

My more detailed post on the proposal (which has already been taken off the
FASB web site) is at

http://groups.yahoo.com/group/FundLaw/message/1195

Banks had hoped for more flexibility in determining the fair value of assets
such as subprime mortgages. For a Bloomberg report, see

http://www.bloomberg.com/apps/news?pid=20601087&sid=auiq4yj5SsmA


John M. Baker <JMB@...>
Stradley Ronon Stevens & Young, LLP http://www.stradley.com
1220 19th Street NW, Suite 600
Washington DC 20036
202.419.8413
202.822.0140 fax
FundLaw Listowner http://groups.yahoo.com/group/fundlaw