GAAP
SFAS 159, The Fair Value Option for Financial Assets and Financial Liabilities,
GAAP. Under SFAS 159, entities may elect the fair value option for many
assets and liabilities. Electing the fair value option means that assets or liabilities
that have previously been measured using one basis (e.g., cost) may
Most financial assets and financial liabilities are eligible for the fair value
option under SFAS 159. Financial assets are explained further in Part II,
and financial liabilities are not eligible for the fair value option, such as
For assets, electing fair value treatment under SFAS 159 means that assets
that were previously carried at lower of cost or fair value (i.e., nonrecurring
fair value adjustments could be made if fair value declines below carrying
value) are carried at fair value on a recurring basis. What does this mean? It
means that if the fair value of an asset increases above the cost of the asset,
that gain is recognized in the financial statements and the asset is adjusted
to the higher amount. Under historical cost accounting, declines in fair value
below book value were recorded, but never gains above book value.
recurring basis as a result of making the SFAS 159 election and others that
are carried at historical cost or another basis. Once made, SFAS 159 fair value
SFAS 157, Fair Value Measurements, defines fair value as “the price that
IFRS defines fair value as “the amount for which an asset could