- February 2008: Volume 20, Number 2

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Deriving Fair Value: New Accounting Measures Establish a Revised Definition

by Serena Wolfe

In September 2006, the Financial Accounting Standards Board (FASB) issued FASB Statement No. 157, Fair Value Measurements. Statement 157 establishes a framework for measuring fair value in generally accepted accounting principals (GAAP), clarifies the definition of fair value within that framework and expands disclosures about the use of fair value measurements. The new standard has potentially far-reaching implications for the real estate industry, including pension funds, REITs, private equity funds and others. These implications include a change in the treatment of transaction costs in determining fair value and the presumption that acquisition price is fair value will no longer be appropriate.

Statement 157 is effective as of the beginning of an entity’s first fiscal year that begins after Nov. 15, 2007 (that is Jan. 1, 2008, for calendar-year reporters).

The board recently issued a draft FASB Staff Position (FSP) FAS 157-b for comment. This FSP proposes to delay

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