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FASB 157

What is 'FASB 157'

A Financial Accounting Standards Board (FASB) Statement that requires all publicly-traded companies in the U.S. to classify their assets based on the certainty with which fair values can be calculated. This statement created three asset categories: Level 1, Level 2 and Level 3. Level 1 assets are the easiest to value accurately based on standard market-based prices and Level 3 are the most difficult.

Explaining 'FASB 157'

FASB 157 was passed to help investors and regulators understand how accurate a given company's asset estimates truly were. Many firms (including some of the largest in terms of assets) had to write down billions of dollars in hard-to-value Level 3 assets following the subprime meltdown and related credit crisis, which began in late 2006. By making companies report to investors the breakdown of assets, they allow investors to potentially see what percentage of the balance sheet could be open to revaluation or susceptible to sudden write-downs.


Further Reading


Did FASB 157 cause the financial crisis?
papers.ssrn.com [PDF]
… 2001 FASB No. 157, Fair Value Measurement, September 2006 … BIOGRAPHY Dr. Paul R. Kutasovic, CFA is Professor of Economics at the New York Institute of Technology and is the Chair of the Economics Department. He …

Did exit pricing under FASB 157 contribute to the subprime mortgage crisis?Did exit pricing under FASB 157 contribute to the subprime mortgage crisis?
papers.ssrn.com [PDF]
… 2001 FASB No. 157, Fair Value Measurement, September 2006 … BIOGRAPHY Dr. Paul R. Kutasovic, CFA is Professor of Economics at the New York Institute of Technology and is the Chair of the Economics Department. He …

The shortcomings of fair-value accounting described in SFAS 157The shortcomings of fair-value accounting described in SFAS 157
www.sciencedirect.com [PDF]
… 2001 FASB No. 157, Fair Value Measurement, September 2006 … BIOGRAPHY Dr. Paul R. Kutasovic, CFA is Professor of Economics at the New York Institute of Technology and is the Chair of the Economics Department. He …

The economic impact of SFAS No. 157The economic impact of SFAS No. 157
link.springer.com [PDF]
… 2001 FASB No. 157, Fair Value Measurement, September 2006 … BIOGRAPHY Dr. Paul R. Kutasovic, CFA is Professor of Economics at the New York Institute of Technology and is the Chair of the Economics Department. He …

Financial reporting quality: is fair value a plus or a minus?Financial reporting quality: is fair value a plus or a minus?
www.tandfonline.com [PDF]
… 2001 FASB No. 157, Fair Value Measurement, September 2006 … BIOGRAPHY Dr. Paul R. Kutasovic, CFA is Professor of Economics at the New York Institute of Technology and is the Chair of the Economics Department. He …

The role of accounting in the financial crisis: Lessons for the futureThe role of accounting in the financial crisis: Lessons for the future
meridian.allenpress.com [PDF]
… 2001 FASB No. 157, Fair Value Measurement, September 2006 … BIOGRAPHY Dr. Paul R. Kutasovic, CFA is Professor of Economics at the New York Institute of Technology and is the Chair of the Economics Department. He …

Fair value accounting and the current financial crisisFair value accounting and the current financial crisis
search.proquest.com [PDF]
… 2001 FASB No. 157, Fair Value Measurement, September 2006 … BIOGRAPHY Dr. Paul R. Kutasovic, CFA is Professor of Economics at the New York Institute of Technology and is the Chair of the Economics Department. He …

The impact of FSP FAS 157-4 on commercial banksThe impact of FSP FAS 157-4 on commercial banks
link.springer.com [PDF]
… 2001 FASB No. 157, Fair Value Measurement, September 2006 … BIOGRAPHY Dr. Paul R. Kutasovic, CFA is Professor of Economics at the New York Institute of Technology and is the Chair of the Economics Department. He …

Risk and financial reporting: A summary of the discussion at the 1997 AAA/FASB conferenceRisk and financial reporting: A summary of the discussion at the 1997 AAA/FASB conference
search.proquest.com [PDF]
… 2001 FASB No. 157, Fair Value Measurement, September 2006 … BIOGRAPHY Dr. Paul R. Kutasovic, CFA is Professor of Economics at the New York Institute of Technology and is the Chair of the Economics Department. He …

Fair value accounting, financial economics and the transformation of reliabilityFair value accounting, financial economics and the transformation of reliability
www.tandfonline.com [PDF]
… 2001 FASB No. 157, Fair Value Measurement, September 2006 … BIOGRAPHY Dr. Paul R. Kutasovic, CFA is Professor of Economics at the New York Institute of Technology and is the Chair of the Economics Department. He …



Q&A About FASB 157


Why did FASB 157 pass this statement?

To help investors and regulators understand how accurate a given company's asset estimates truly were. Many firms (including some of the largest in terms of assets) had to write down billions of dollars in hard-to-value level 3 assets following the subprime meltdown and related credit crisis, which began in late 26. By making companies report to investors the breakdown of assets, they allow investors to potentially see what percentage of the balance sheet could be open to revaluation or susceptible to sudden write-downs.

What is meant by Principal Market?

The market with greatest volume and level of activity for an asset or liability.

What is the definition of fair value?

Fair Value Measurement assumes the hypothetical transaction occurs in a principal market, the market in which the reporting entity would sell the asset or transfer the liability with greatest volume and level of activity for that asset or liability.

How does this statement define fair value?

The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at measurement date.

Which asset category is easiest to value accurately?

Level 1 assets are the easiest to value accurately.

What is meant by Highest and Best Use?

Highest and best use refers to how an entity plans on using its assets, such as whether it will be used as collateral for loans, etc.

What does FASB 157 do?

FASB 157 requires all publicly traded companies in the U.S. to classify their assets based on the certainty with which fair values can be calculated.

Which asset category is most difficult to value accurately?

Level 3 assets are the most difficult to value accurately.

What are three asset categories created by FASB 157?

Level 1, Level 2 and Level 3 assets.

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