Wiley GAAP 2008

Objectives

Since the late 1980's, FASB has been pursuing a stated goal that would require all financial instruments and many other assets and liabilities to be stated at each balance sheet date at fair value with changes from period to period recognized as gains or losses in the statement of income. The pursuit of this goal has resulted in a succession of standards that have increased the number of fair value measurements required by GAAP and, to provide more transparency to users, increased the scope and complexity of the related disclosures required.

In December 1991, with the issuance of FAS 107, Disclosures about Fair Value of Financial Instruments, the term “fair value” was coined to replace the previously used term “market value” (for which the term “fair market value” was sometimes used interchangeably) in authoritative accounting literature. This change was made to emphasize the fact that, even in the absence of active primary markets for an asset or liability, the asset or liability can be valued by reference to prices and rates from secondary markets as well. Over time, this concept has been expanded further to include the application of various fair value estimation models, such as the discounted probability‐weighted expected cash flow model first introduced in CON 7.

As these broader fair value concepts were evolving in the literature and in practice, the preexisting “market‐based” literature had not been revised. Further, the concepts and definitions of fair value ...