Financial Accounting Standards Board - FASB Statement No. 107

A

ASusilovic

February 25, 2009


VIA Electronic Mail (director@fasb.org)
Technical Director
Financial Accounting Standards Board
401 Merritt7, P.O. Box 5116
Norwalk.CT 06856-5116


File Reference; Proposed FSP FAS 107-b and APB 28-a



Dear Board Members and FASB Staff:

The Mortgage Bankers Association1 (MBA) appreciates the opportunity to
comment on the proposed FASB Staff Position (FSP), Interim Disclosures about
Fair Value of Financial Instruments (the proposed FSP). The purpose of the
proposed FSP is to increase the frequency of disclosures about fair value to
improve the transparency and quality of information provided to users of financial
statements.
FASB Statement No. 107 (Statement 107), Disclosures about Fair Value of
Financial Instruments, currently requires disclosures about fair value of financial
instruments in annual financial statements. The proposed FSP would require
such disclosures to be made in interim financial reports as well.
The proposed FSP would be effective for interim and annual reporting periods
ending after March 15, 2009.

MBA's Comments
Support of Proposed FSP: MBA recognizes that the proposed FSP will require
more disclosures under what are already tight reporting deadlines. However,
given the current hybrid accounting model where some assets and liabilities are
carried at amortized cost and some at fair value, MBA recognizes users of
financial statements would be better served having fair value information on an
interim basis. Since the required disclosures are provided on an annual basis,
entities should already have infrastructure in place to prepare those disclosures.
Accordingly, MBA supports the proposed FSP. However, for SEC registrants,
the interim reporting period is much shorter than the annual reporting period.
Therefore, MBA asks that FASB continuously keep in mind the shortened interim
reporting time frame when considering the expansion of annual disclosures to
interim periods.
Support for Strategic Review of Fair Value Project: Paragraph 3 in the
background section of the proposed FSP refers to a recent addition to the FASB
agenda of a joint project with the International Accounting Standards Board
(IASB) to address the complexity related to recognition and measurement of
financial instruments (joint fair value project). MBA recognizes that there is a
growing conflict of opinion on the usefulness of fair value accounting as now
envisioned in the accounting rules. Accordingly, MBA strongly supports the joint
fair value project.
The MBA appreciates the opportunity to share these comments with the Board.
Any questions about MBA's comments should be directed to Jim Gross,
Associate Vice President and Staff Representative to MBA's Financial
Management Committee, at (202) 557-2860 orjgross@mortgagebankers.org.
Sincerely,
John A. Courson
President and Chief Executive Officer

http://www.fasb.org/ocl/FSPAPB-1/53572.pdf
 
Question 2: What additional guidance, if any, is needed in the area of
determining fair value?
FASB Statement No. 157, Fair Value Measurements, defines fair value as follows:
Fair value is 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.
An orderly transaction excludes forced sales and liquidations.
In its fair value measurement guidance project, the IASB is considering the
appropriateness of the guidance in Statement 157, but is currently expected to issue final
guidance that will contain a largely similar current exit price approach to fair value.
While there are many different views concerning the appropriateness of fair value for
various types of financial instruments under various scenarios, a number of constituents
have expressed a desire for (a) additional application guidance for identifying illiquid or
inactive markets and for determining the impact of liquidity on fair value and (b)
additional disclosures on how entities have determined fair value in such circumstances.
Recommendations in this area come from such otherwise divergently-viewed
constituents, such as Professor Stephen Ryan, the G-30, and the SEC, in their respective
papers/reports.

The IASB recently issued guidance developed by an expert panel that identified issues
relating to the difficulties of measuring fair value when markets are illiquid. The
guidance focused on the information that can be used when markets are illiquid and
emphasized the judgment needed to arrive at the fair value estimate.

It also identified
disclosure practices that would provide greater transparency about the use of fair value
estimates in financial statements. Other efforts in this area by the IASB and the FASB
were described by Gavin Francis and Russ Golden at the January 20 meeting.

FOR DISCUSSION AT THE MARCH 5, 2009, MEETING OF THE FINANCIAL
CRISIS ADVISORY GROUP
-7-
Another area for which additional guidance has been sought by constituents is contractual
restrictions on transfer of liabilities. Most indebtedness can only be settled, not
transferred to third parties. The FASB is currently addressing this matter with proposed
FASB Staff Position (FSP) FAS 157-c, Measuring Liabilities under FASB Statement No.
157, which is being redeliberated and is expected to be issued in March 2009.
The SEC’s Mark-to-Market Report also calls for additional consideration by the FASB of
a number of other fair value implementation matters. The FASB has vetted these matters
with its Valuation Resource Group, and recently added short-term projects to consider
providing additional application guidance on:


• Determining when a market for an asset or a liability is active or inactive
• Determining when a transaction is distressed
• Applying fair value to interests in alternative investments, such as hedge funds
and private equity funds.


The FASB also added a short-term project to consider requiring additional disclosures on
such matters as sensitivities of fair value measurements to key inputs and transfers of
items between the fair value measurement levels.

The IASB is monitoring the progress of the FASB’s short-term application and disclosure
projects.
 
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