Exploring Corporate Governance Around the World

By Allison Garrett, Senior Vice President for Academic Affairs at Oklahoma Christian University

Friday, January 27, 2006

FASB Exposure Draft on Fair Value Option for Financial Assets and Liabilities

On Wednesday, FASB issued an exposure draft entitled The Fair Value Option for Financial Assets and Financial Liabilities. The deadline for comments is April 10.

The proposed statement creates a fair value option allowing an entity irrevocably to elect fair value as the measurement for certain financial assets and liabilities. An election is made on a contract-by-contract basis, or on the basis of a preexisting documented policy covering such transactions.

Disclosure changes would require companies to provide investors with enough information to understand how the changes in fair value affected earnings.

The purpose of the change is to harmonize GAAP differences that require fair value for some assets or liabilities, and other measurement of other types of assets or liabilities. The change also helps to harmonize US GAAP with IASB pronouncements, leading to further convergence of international accounting standards.

The exposure draft can be accessed here: http://www.fasb.org/draft/ed_fair_value_option.pdf

No comments: