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Fair Value Essay

660 words - 3 pages

FAS 157 defined the fair value of an asset as the price that would be received by the holder of that asset in an orderly transaction. On September 30, 2008, SEC and FASB issued a joint clarification which stressed that fair market value is not the price that would be received in distressed sale or forced liquidation. They also provide guidance that estimates of fair value can be made using the expected cash flow of such assets, provided the estimates has also reflects the adjustment of a willing buyer in the risk of default. This concept created transparency on the value of the assets which was easily confirmed by the auditors and users of the financial statements. However, during the ...view middle of the document...

On April 9, 2009, FASB further issued an official update to FAS 157 which eases mark to market rules when market is unsteady or inactive.
The leeway and the official update of FAS 157 have created controversy among the pro and contra opponents of fair value accounting. Many bankers have pointed out the use of ‘mark to market’ in distressed market lead to unreasonable write down of their financial assets. Robert Rubin , the former citigroup senior counselor was quoted saying that the rule has done “a great deal of damage”. William Isaac, former chairman of FDIC, has called fair value as the ‘major cause’ of the credit crisis. Spencer Bachus, the ranking republican on the house financial services committee pointed out the rigid application of fair value accounting had caused further instability in the banking system. The proponent of fair value accounting argued the notion that fair value accounting is the cause of the crisis. Arthur Levitt , former SEC chairman, pointed out...

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