FAS 157

Jr Deputy Accountant  Mar 30  Comment 
Normally everyday folks like Ms. Mary Wynne don't bat an eyelash at FASB regs or invitations to comment. Conceptual Framework for Financial Reporting: The Reporting Entity? Pfft. Cash Flow Hedges: Hedging the Variable Interest Payments on a Group...
Venture Chronicles  Jul 14  Comment 
Great post title, huh? First the hat tip to Scott Rafer for pointing me to this deliciously satirical column about a very serious subject, FAS 157. I propose another rule standard for valuing a company’s assets that reflects my abilities to...
naked capitalism  Jul 3  Comment 
Roger Ehrenberg has a great post today, "Straight-talk on FAS 157: Blackstone and their Banker Buddies Have it Wrong," which I suggest you all read. Although I was taken with the entire discussion, the last paragraph caught my attention:So why do...
Hedge Fund Blogs From HedgeCo.Net  Jan 23  Comment 
The Financial Accounting Standards Board (“FASB”) recently reaffirmed that [...]
Hedge Fund Blogs From HedgeCo.Net  Oct 15  Comment 
FASB announced that among issues to be discussed at this Wednesday's FASB board meeting, it will consider an "Agenda decision" on whether to defer the effective date of FAS 157, Fair ValueMeasurement. In its October 1, 2007 comment letter, the...


Effective November 15, 2007, the Financial Standards Accounting Board mandates a new standard called FAS 157 that the assets be measured at "fair value", described as "the price that would be received to sell an asset now". FAS 157’s fair value approach requires them to imagine selling their portfolio items each quarter, and to identify the factors that would play into the value. The biggest changes wrought by FAS 157 relate to disclosure and how companies need to think about market values when there isn’t a market for something and they “mark to model.”

FAS 157 divide Bank's assets into three “levels”, according to the freedom with with which they can be bought or sold:-

Level 1 assets have quoted prices in active markets such as US government bonds or gold bullion, thus valued at mark-to-market.

Level 2 asset - these assets are not as fully marketable as level one, but still sufficiently tradeable to have a definite value. Known as mark-to-model, these are estimates based on observable inputs. generally banks have their own valuation models (e.g. price multiple model & further complex ones).

Level 3 assets – usually artificial financial instruments – are the problem. They do not have quoted prices in active markets. They have to be valued by reference to the bank’s own models. Level 3 consists of unobservable inputs, its what market participants would use to price the asset or liability (including risk), using the best information available.

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