CUNA Regulatory Comment Call

October 6, 2008

Proposed FASB Staff Position on Fair Value Measurements


Please feel free to fax your responses to CUNA at 202-638-7052; e-mail them to Senior Vice President and Deputy General Counsel Mary Dunn at and to Regulatory Research Counsel Luke Martone at; or mail them to Mary and Luke in c/o CUNA’s Regulatory Advocacy Department, 601 Pennsylvania Avenue, NW, South Building, Suite 600, Washington, DC 20004-2601. You may also contact us at 800-356-9655, ext. 6732, if you have questions or would like a copy of the proposed rule. You may also access a copy of the proposed FSP here.


Statement 157 was issued in September of 2006 with a November 2007 effective date for financial assets and financial liabilities. The purpose of Statement 157 is to establish a “single definition of fair value and a framework for measuring fair value in generally accepted accounting principles (GAAP) that result[s] in increased consistency and comparability in fair value measurements.”

This proposed FSP has been issued as a result of constituent concern over a lack of sufficient guidance on how to determine fair value of financial assets in an inactive market.


This FSP contains guidance on applying fair value in an inactive market and provides an illustrative example for such application. The guidance notes that the objective of fair value measurement, whether in an active or inactive market remains the same; that is, “the price that would be received by the holder of the financial asset in an orderly transaction that is not a forced liquidation or distress sale at the measurement date.”

Regarding management’s internal assumptions, the FSP states that assumptions about future cash flows, as well as appropriately risk-adjusted discount rates, is acceptable when relevant observable market data does not exist. Whether observable or unobservable market data are used in determining valuation, an “entity must include appropriate risk adjustments that market participants would make for nonperformance and liquidity risks.”

The FSP states that broker quotes may be an input for measuring fair value, but are not necessarily determinative if no active market exists for the financial asset. Additionally, in a less active market, brokers may rely more on models with inputs based on the information available only to the broker. For fair value purposes, less weight should be placed on broker quotes that do not reflect the result of market transactions.

Statement 157 currently requires certain disclosures, such as for nonrecurring fair value measurements using significant unobservable inputs. When using such data, Statement 157 “requires an entity to disclose a description of the inputs and the information used to develop those inputs.” For fair value measurements affected by this FSP, the FASB staff strongly encourages similar disclosures.

Lastly, the FSP includes an illustrative example for determining fair value in an inactive market. In the example, Entity A, holds a collateralized debt obligation (CDO) collateralized by unguaranteed nonconforming residential mortgage loans. The example details how Entity A can measure the fair value of this CDO when there is no active market for such an asset; for this example, use of the risk-adjusted discount rate is appropriate in measuring the CDO’s fair value.


  1. Is the FSP’s guidance regarding management’s internal assumptions helpful in measuring the fair value of an asset in an inactive market?

  2. Is the FSP’s guidance regarding the use of unobservable market data helpful in measuring the fair value of an asset in an inactive market?

  3. Is the FSP’s guidance regarding the use of broker quotes helpful in measuring the fair value of an asset in an inactive market?

  4. Are the proposed additional disclosure requirements sufficient? What additional disclosures could be useful?

  5. Although the proposed example is one example and fact specific, will it aid in determining fair value in an inactive market? Would additional examples be helpful? If so, what should those examples focus on?

  6. Any other comments or concerns regarding FASB’s FSP?

Eric Richard • General Counsel • (202) 508-6742 •
Mary Mitchell Dunn • SVP & Deputy General Counsel • (202) 508-6736 •
Jeffrey Bloch • Assistant General Counsel • (202) 508-6732 •
Lilly Thomas • Assistant General Counsel • (202) 508-6733 •
Luke Martone • Senior Regulatory Counsel • (202) 508-6743 •