On April 2, the Financial Accounting Standards Board (FASB) met to consider changes to proposed FASB Staff Position FAS 157-e, Determining Whether a Market Is Not Active and a Transaction is Not Distressed (FSP). FASB decided that the final FSP would:
- Affirm that the objective of fair value when the market for an asset isnot active is the price that would be received to sell the asset in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions (that is, in the inactive market).
- Clarify and include additional factors for determining whether there has been a significant decrease in market activity for an asset when the market for that asset is not active.
- Eliminate the proposed presumption that all transactions are distressed (not orderly) unless proven otherwise. The FSP will instead require an entity to base its conclusion about whether a transaction was not orderly on the weight of the evidence.
- Include an example that provides additional explanation on estimating fair value when the market activity for an asset has declined significantly.
- Require an entity to disclose a change in valuation technique (and the related inputs) resulting from the application of the FSP and to quantify its effects, if practicable.
The FASB also affirmed its previous decision that the FSP would be application would not permitted