The Financial Accounting Standards Board issued a
clarification late Friday of its fair value or "mark-to-market" accounting rules that gives guidance to financial firms on how to value illiquid assets in distressed markets. The FASB ruling builds on a statement it released with the Securities and Exchange Commission on Sept. 30, with examples of how companies should use their best judgment to value assets that have no active market.
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"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," the FASB statement said.
"In determining fair value for a financial asset, the use of a reporting entity's own assumptions about future cash flows and appropriately risk-adjusted discount rates is acceptable when relevant observable inputs are not available," it said. - Donna Block
Donna Block is a senior writer for The Deal.
