1.) The SEC’s Enforcement Division will have responsibility over potential fraud related to the implementation of FAS 157. Given the recent experience with the Bernie Madoff case and diminished investor confidence in the impartiality and abilities of that division, do you think the SEC will be able to provide adequate oversight so that FAS 157 is not abused?

2.) Will the new Fair Value rules cause organizations to stop carrying investments that must be evaluated by Level 2 and Level 3 rules, both to avoid the complex record keeping and costs, but also to avoid potential litigation? If this happens, what does this imply about assets and liabilities for which there are limited markets or observable inputs?

Homework questions:

1. Why was Statement 157 issued?

2. What are the acceptable methods, per FAS 157 of determining fair value? Briefly

summarize what the different levels mean and the ease or difficulty with which an

accounting department might have in finding ways to value assets and liabilities that fall

in each category.

3. Explain what the notion of “exchange price” is and how it relates to Statement 157 Fair

Value. What is the “measurement date” of a transaction that is to be measured at fair

value? What are “entry price” and “exit price” and why do you think Fair Value is

measured at the “exit price”?

4. List at least 3 pros and 3 cons about Fair Value reporting and write a brief description of

why each is a good or bad thing about Fair Value. Consider both the viewpoint of the

investor/market/user of the financial statements, and the viewpoint of the company that

has to try to apply these new valuation methods.