FASB Statement 157 & 159

FAS No. 157 defines fair value as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date”. The definition focuses on the price to sell an asset or extinguish a liability, or the exit price, as most representative of fair value. The definition also focuses on the use of market based measurements versus entity-specific or internal measurements as the preferred valuation inputs.

The disclosure requirements of FAS No. 157 are designed to provide readers more insight into the fair value assumptions utilized by management and their resultant impact on the financial statements.

FAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value. The objective of the Statement is to improve financial reporting by providing entities the opportunity to mitigate volatility in reporting earnings caused by measuring related assets and liabilities differently. The Statement allows the fair value election for many financial instruments, with notable exclusions for pension liabilities, capital lease assets and liabilities, and temporary equity instruments.

FAS No. 157 and 159 are effective in fiscal years beginning after November 15, 2007, or 2008 for calendar year entities. We encourage you to become familiar with the Statements to determine their impact on your financial statements.