FASB 157

After nearly 15 months of debate, FASB issued Statement Number 157 in late 2007. All financial statements for SEC reporting businesses whose fiscal year begins after November 15, 2007 and interim periods within those fiscal years must comply with the new standard's definition of fair value, including the fair values that are part of FASB 141 purchase price allocation, and FASB 142 Goodwill impairment testing.

The Statement clarifies that the exchange price, as noted in earlier definitions, is the price in an orderly transaction between market participants to sell the asset or transfer the liability in the market in which the reporting entity would transact for the asset or liability, that is, the principal or most advantageous market for the asset or liability. The transaction to sell the asset or transfer the liability is a hypothetical transaction at the measurement date, considered from the perspective of a market participant that holds the asset or owes the liability. Therefore, the definition focuses on the price that would be received to sell the asset or paid to transfer the liability (an exit price), not the price that would be paid to acquire the asset or received to assume the liability (an entry price).

Statement 157 also defines a hierarchy of valuation methodology. There are three levels:

• Level I-Is defined as the market quoted price for an identical asset, i.e., 5 acres of commercial real estate adjacent to the one being valued or identical computer systems
• Level II-Is defined as the market quoted price for a similar asset, i.e., 5 acres of commercial real estate across town, or a Dell Computer system vs. HP
• Level III-Cost or income approach to value

ALL appraisers are required to determine if a Level I or Level II valuation methodology exists for the asset being valued. For the valuation of intangible assets, individual business units, private business entities, and most industrial or commercial tangible assets, adequate Levels I or II market valuation comparisons cannot be obtained. Enterprise Appraisal Company will utilize its 37 years of experience in applying the right methodology to insure the valuation will be compliant with GAAP procedures as defined by FASB 157.