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Letters to Regulators
Fair Value Measurements
September 2, 2004
Re: File Reference No. 1201-100
Dear Sir or Madame:
The Independent Community Bankers Association (ICBA)1 welcomes the opportunity to comment on the exposure draft, "Fair Value Measurements." The following are ICBA's initial views on the exposure draft. ICBA's Lending Committee, which studies accounting issues for ICBA, holds its semi annual meeting in late September and fair value measurement will be a topic on its agenda. We would like to provide FASB any additional comments from this discussion subsequent to the meeting.
General Summary of the Proposal
The exposure draft defines "fair value" as the price at which an asset or liability could be exchanged in a current transaction between knowledgeable, unrelated willing parties. The proposed statement does not establish requirements for when to measure assets and liabilities at fair value but how to measure fair value. It would apply broadly to financial and nonfinancial assets and liabilities that are measured at fair value under other authoritative accounting pronouncements. FASB would consider when to use fair value measurement on a project-by-project basis in individual pronouncements. FASB expects that the guidance provided by this proposed statement will be applied together with applicable valuation standards and generally accepted valuation practices, where appropriate.
The proposed statement would require expanded disclosures about the use of fair value to remeasure assets and liabilities recognized in the statement of financial position, including information about the fair value amounts, how those fair value amounts were determined, and the effect of the remeasurements on earnings (including unrealized gains and losses).
Currently there is limited guidance for applying the fair value measurement objective in generally accepted accounting principles (GAAP) and existing guidance is spread among the many pronouncements that require fair value measurements, resulting in some inconsistencies. FASB states that many constituents have raised concerns about the ability to develop reliable estimates of fair value in certain circumstances, in particular, in the absence of quoted prices. Thus, FASB wants to develop a framework clarifying the fair value measurement objective and its application under other pronouncements that require fair value measurements.
FASB anticipates that the result of this statement will be improved financial reporting from increased consistency, reliability, and comparability. According to FASB, expanded disclosures about the resulting fair value measurement should provide information that is useful to users of financial statements in assessing the effects of those measurements used in financial reporting. FASB hopes that the statement will advance its initiatives to simplify and codify the accounting literature.
Fair Valuation Should Not Require Undue Cost and Effort
Practicability Exemption Critical
Thank you for the opportunity to comment. If you need additional information or have any questions, please contact Ann Grochala, ICBA director of lending and accounting policy, at 202-659-8111 or firstname.lastname@example.org.
1 The Independent Community Bankers of America represents the largest constituency of community banks of all sizes and charter types in the nation, and is dedicated exclusively to protecting the interests of the community banking industry. ICBA aggregates the power of its members to provide a voice for community banking interests in Washington, resources to enhance community bank education and marketability, and profitability options to help community banks compete in an ever-changing marketplace. For more information, visit ICBA's website at www.icba.org.