The "price" of an asset is further defined as to represent that of a hypothetical sale transaction that is not the actual transaction or entry price.  The intent of SFAS 157 is to provide prescriptive valuation measurement guidance that would result in uniform and transparent financial reporting among industry participants.

SFAS 157 Clarifications

Since its release, SFAS 157 has been subjected to some criticism by practitioners and investors alike for lacking clarity regarding the statement's underlying valuation premise that an asset's fair value is governed by its current liquidity or its exit-sale value (the criticism has been more notable in the financial institutional sector where SFAS 157 has been blamed as one of several causes for the loan write-offs reported by several banks that have created the US credit crisis).  Accordingly, follow-up memos have been submitted to the public by the FASB and the SEC to provide clarification to applying SFAS 157 market-to-market accounting to illiquid assets of all companies that use generally accepted accounting principles. 

The spirit of the recent FASB and SEC guidance memos allows companies to have some latitude, or judgment, in determining an asset's fair value in place of a prescriptive methodology (i.e., if a market for an asset does not exist, its fair value may be based on other factors and methodology including discounted cash flow valuation methodology).  In addition, because an asset's fair value is also defined as being based on an orderly transaction, any market transactions deemed to have occurred under distressed conditions have to be evaluated in the context of whether these transactions fairly represents long term impairment or loss.  In essence, the guidance allows leeway for more judgment to be taken in selecting valuation methodology in an apparent effort to make accounting rules less prescriptive and more principles based (which is in line with lthe less rule intensive international accounting rules).    

Paragon and SFAS 157

With its experience and expertise, Paragon Advisory Services, Inc . is equipped to assist auditors and corporations in making any difficult "judgment calls" in connection with estimating fair value for a wide array of corporate assets.  In addition, Paragon believes part of its consulting mission is to advise its clients of any follow-up clarifications to SFAS 157 by the FASB and the SEC and to interpret their guidance for individual client fair value requirements.