Tuesday, October 12, 2010: 4:20 PM
In September, 2006 the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (SFAS 157). This pronouncement provides guidance for determining the fair values of assets and liabilities and requires the disclosure of information about (1) the extent to which companies measure assets and liabilities at fair value; (2) the information used to measure fair value; and (3) the effect that fair-value measurements have on earnings.
The requirements to use fair value measurements have been criticized for producing inaccurate results in the current market turmoil. Proponents of SFAS 157 believe that even if SFAS 157 has exacerbated the current market crisis, it is still the most accurate and transparent means for valuing assets and liabilities.
Later on April 9, 2009, The FASB issued staff position, SFAS 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly” (SFAS 157-4). This pronouncement was issued in response to concerns voiced by various groups that SFAS 157 does not provide sufficient guidance on how to determine whether a market for financial assets is not active and whether a transaction is not distressed (FASB, 2009). This pronouncement was effective for all companies issuing quarterly financial statements after June 30, 2009; however, early adoption was allowed for fiscal quarters ending after March 15, 2009. It has been suggested that the impact of SFAS 157-4 will be that banks’ reported profitability will improve and that their balance sheets will reveal much more capital than was previously reported under SFAS 157
The objective of this study is to examine and evaluate the impact of SFSP FAS 157-4 on a sample of banks. In order to assess the issue, the following research questions will be examined:
1. What proportion of sample companies early adopted FSP FAS 157-4’s disclosure requirements?
2. What was the effect on income of FSP FAS 157-4 for the early adopters?
3. What percentage of total assets are financial assets measured at fair value?
4. What percentage of financial assets is measured by each input level category by the early adopters in the sample?
5. What was the amount of change in total assets, total financial assets and financial assets by category level for our sample companies between December 31, 2008 and March 31, 2009?
6. What are the characteristics of the banks that early adopted FSP FAS 157-4 as compared to the non adopters?
For the purpose of this study, our sample is all the Russell-3000 commercial banks that issued quarterly reports (Form 10-Q’s) dated March 31, 2009, the first quarter in which FSP FAS 157-4 was eligible to be adopted. A total of 73 companies met this criterion and were included in our sample.
We are currently analyzing the results and expect to have a final paper completed by July 15, 2010.
The requirements to use fair value measurements have been criticized for producing inaccurate results in the current market turmoil. Proponents of SFAS 157 believe that even if SFAS 157 has exacerbated the current market crisis, it is still the most accurate and transparent means for valuing assets and liabilities.
Later on April 9, 2009, The FASB issued staff position, SFAS 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly” (SFAS 157-4). This pronouncement was issued in response to concerns voiced by various groups that SFAS 157 does not provide sufficient guidance on how to determine whether a market for financial assets is not active and whether a transaction is not distressed (FASB, 2009). This pronouncement was effective for all companies issuing quarterly financial statements after June 30, 2009; however, early adoption was allowed for fiscal quarters ending after March 15, 2009. It has been suggested that the impact of SFAS 157-4 will be that banks’ reported profitability will improve and that their balance sheets will reveal much more capital than was previously reported under SFAS 157
The objective of this study is to examine and evaluate the impact of SFSP FAS 157-4 on a sample of banks. In order to assess the issue, the following research questions will be examined:
1. What proportion of sample companies early adopted FSP FAS 157-4’s disclosure requirements?
2. What was the effect on income of FSP FAS 157-4 for the early adopters?
3. What percentage of total assets are financial assets measured at fair value?
4. What percentage of financial assets is measured by each input level category by the early adopters in the sample?
5. What was the amount of change in total assets, total financial assets and financial assets by category level for our sample companies between December 31, 2008 and March 31, 2009?
6. What are the characteristics of the banks that early adopted FSP FAS 157-4 as compared to the non adopters?
For the purpose of this study, our sample is all the Russell-3000 commercial banks that issued quarterly reports (Form 10-Q’s) dated March 31, 2009, the first quarter in which FSP FAS 157-4 was eligible to be adopted. A total of 73 companies met this criterion and were included in our sample.
We are currently analyzing the results and expect to have a final paper completed by July 15, 2010.