The Financial Accounting Standards Board’s Statement No. 157 (now known as Accounting Standards Codification Topic 820), which was adopted in 2006, provides a framework for measuring fair value and for disclosures regarding fair value determinations. Companies often find FAS 157 to be one of the most difficult standards to apply. Particularly where comparable market information is not readily available, determining fair value can involve the exercise of significant judgment and estimates, often based on “non-observable” inputs.

In February, the Financial Accounting Foundation, which oversees the FASB, issued a Post-Implementation Report on Fair Value Measurements to evaluate the effectiveness and impact of the standard. The report generally found that FAS 157 had achieved its expected benefits. Among other things, the Report found that FAS 157 “generally provides investors with decision-useful information,” though it also noted that “some investors have difficulty understanding fair value information provided in the financial statements and their level of satisfaction with that information varies.”

Notably, the Report found that some stakeholders believe that FAS 157 had resulted in significant changes to financial reporting and operating practices. The Report pointed to the Public Company Accounting Oversight Board’s “increased focus on auditing fair value measurements,” which has “resulted in greater focus by preparers and auditors on testing and documenting significant assumptions and inputs used in fair value measurements.” This in turn may affect the complexity of valuation techniques used to measure fair value, the time required to complete required valuations and the use of external valuation expertise to measure fair value.

The Report concluded that FAS 157 had resulted in significant ongoing compliance costs. The most significant impacts were increases in audit fees, audit requirements and the use of third-party pricing services and valuation consultants. The Report noted that the costs were not exclusively the result of FAS 157 requirements but also related to “regulatory environment factors” arising from the Sarbanes-Oxley Act, SEC reviews and PCAOB inspections. It also said that the financial crisis may have “amplified” these costs.