{"id":253,"date":"2009-10-02T11:47:00","date_gmt":"2009-10-02T17:47:00","guid":{"rendered":"http:\/\/cfo.markbaileyco.com\/?p=253"},"modified":"2009-10-02T11:47:00","modified_gmt":"2009-10-02T17:47:00","slug":"fair-value-inactive-markets-and-orderly-transactions","status":"publish","type":"post","link":"https:\/\/www.excelsisaccounting.com\/blog\/index.php\/2009\/10\/02\/fair-value-inactive-markets-and-orderly-transactions\/","title":{"rendered":"Fair Value &#8211; Inactive Markets and Orderly Transactions"},"content":{"rendered":"<p>Recently issued \u201cguidance\u201d provides that when determining the fair value of certain assets (liabilities) it is only appropriate to use comparable transactions that were not fire (liquidation) sales where an active market exists.\u00a0\u00a0\u00a0 The recent guidance (pre codification FSP FAS 157-4, codification 820-10-65-65-4), effective for interim and annual periods ending after June 15, 2009, simply provides additional items to consider for adding additional premiums or discounts when developing fair value estimates.<\/p>\n<p>Further, the new guidance continues to reiterate the fair value definition that has been around for several decades, \u201cFair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.\u201d\u00a0 Remember, the Company\u2019s intent or ability to hold an asset should not be used in determining fair value as the estimate is market based and not entity specific.<\/p>\n<p>In developing\u00a0estimates, several factors provide an indication that significant adjustments to fair value (in this case quoted market prices \u2013 Level 1 inputs) may be necessary when market activity does not appear to be normal.\u00a0 Some of those factors include:<\/p>\n<ul>\n<li>Declines in recent transactions<\/li>\n<li>Price quotations are stale or vary substantially, including significant bid-ask spreads<\/li>\n<li>Indexes no longer correlate to values of individual assets or liabilities<\/li>\n<\/ul>\n<p>After analyzing the market activity in general, the next step is to perform additional analysis to determine the transactions were not forced liquidations or distressed sales.\u00a0 Factors to consider when a transaction may constitute a distressed sale include:<\/p>\n<ul>\n<li>A recent transaction that appears to be an outlier compared to other recent transactions<\/li>\n<li>Signs indicate the seller is experiencing significant financial difficulty, e.g. at or near bankruptcy<\/li>\n<li>The asset (liability) was not marketed for an appropriate period or to multiple buyers<\/li>\n<\/ul>\n<p>Three outcomes exist when analyzing transactions to determine if they fall within the fair value definition and require inclusion in estimates.\u00a0 First, if the transaction is not orderly, it would likely hold little weight in estimating fair value.\u00a0 Second, if the transaction is orderly, see above market activity analysis when determining how to include in fair value estimates including risk premiums.\u00a0 Finally, there may not be enough information available to conclude whether the transaction is orderly, in which case, it should still be considered, but not the sole indicator of fair value.<\/p>\n<p>The guidance recognizes that issuers need not undertake undue cost and effort in making these market determinations, but should not ignore information that may be readily available in the public domain.\u00a0 Further, the degree of difficulty and subjectivity in developing risk premiums does not provide a sufficient basis to exclude risk adjustments to fair value.<\/p>\n<p>At this point, you may be asking yourself \u2013 where does one obtain all of this information?\u00a0 That is a very good question and I am out of time\u2026anyone, anyone, anyone?.!<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Recently issued \u201cguidance\u201d provides that when determining the fair value of certain assets (liabilities) it is only appropriate to use comparable transactions that were not fire (liquidation) sales where an active market exists.\u00a0\u00a0\u00a0 The recent guidance (pre codification FSP FAS 157-4, codification 820-10-65-65-4), effective for interim and annual periods ending after June 15, 2009, simply &hellip; <a href=\"https:\/\/www.excelsisaccounting.com\/blog\/index.php\/2009\/10\/02\/fair-value-inactive-markets-and-orderly-transactions\/\" class=\"more-link\">Continue reading<span class=\"screen-reader-text\"> &#8220;Fair Value &#8211; Inactive Markets and Orderly Transactions&#8221;<\/span><\/a><\/p>\n","protected":false},"author":6,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3,37,153],"tags":[152,154,155,156,157,158,159],"class_list":["post-253","post","type-post","status-publish","format-standard","hentry","category-accounting","category-decomplexifying-accounting","category-fair-value","tag-estimates","tag-far-value","tag-fsp-157-4","tag-fsp-fas-157-4","tag-inactive-markets","tag-orderly-transaction","tag-risk-premium"],"_links":{"self":[{"href":"https:\/\/www.excelsisaccounting.com\/blog\/index.php\/wp-json\/wp\/v2\/posts\/253","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.excelsisaccounting.com\/blog\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.excelsisaccounting.com\/blog\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.excelsisaccounting.com\/blog\/index.php\/wp-json\/wp\/v2\/users\/6"}],"replies":[{"embeddable":true,"href":"https:\/\/www.excelsisaccounting.com\/blog\/index.php\/wp-json\/wp\/v2\/comments?post=253"}],"version-history":[{"count":0,"href":"https:\/\/www.excelsisaccounting.com\/blog\/index.php\/wp-json\/wp\/v2\/posts\/253\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.excelsisaccounting.com\/blog\/index.php\/wp-json\/wp\/v2\/media?parent=253"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.excelsisaccounting.com\/blog\/index.php\/wp-json\/wp\/v2\/categories?post=253"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.excelsisaccounting.com\/blog\/index.php\/wp-json\/wp\/v2\/tags?post=253"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}