【正文】 fair value took place when panies began to adopt SFAS 133, Accounting for Derivatives and Hedging Activities, in 1999. Prior to SFAS 133, panies were not required to put all derivatives on their balance sheet at fair value。 derivatives were not even defined in the literature. For the first time, plex financial instruments, many of which were involved in hedging relationships, were subject to fair valuation. Soon after, SFAS 140, Transfers of Financial Assets, gave rise to difficulttovalue seductive financial assets, such as residential and mercial mortgagehacked securities (RMBS and CMBS), which in turn gave rise to collateralized debt obligations(CDO) and other financial instruments. A barrage of valuation techniques based on higher math designed to account for securitization followed.SFAS 157 had a significant impact on fair value accounting for illiquid securities, which are typically among the most difficult assets to value. Prior to SFAS 157, panies often cherrypicked information to support valuations for illiquid positions, regardless of accuracy. Now, they are required to consider all reasonably available information and use the best data available to support their market assumptions and parameters.Even though SFAS 157 has been in effect for more than a year, many illiquid assets are still being valued based on previous methodologies that are clearly inaccurate.Today39。s EnvironmentIn the current economic environment, air value accounting faces intensified scrutiny, challenging situations, and significant opposition. Attention is especially focused on three areas:? Otherthantemporary writedowns,? Freshstart accounting, and? Illiquid securities.Otherthantemporary writedowns.With Level 1 securities, determining when to record an otherthantemporary impairment can he as straightforward as deciding how much time has passed since an impairment began. When the tech bubble burst, for example, panies often realized after six to nine months that asset values weren39。t going to recover any time soon, if at all.But what about Level 2 or Level 3 assets that are valued using sophisticated modeling techniques? Prior to SFAS 157, panies and their auditors might have agreed to hold off or postpone making an adjustment, due to a lack of relevant and reliable information. SFAS 157 has driven panies to consider new types and sources of information, and to work harder to support valuations for Level 2 and Level 3 assets. Companies are now expected to support their Level 2 and Level 3 assets almost as if they were Level I assets.In evaluating goodwill for otherthan temporary impairment, SFAS 157 suggests that a publicly traded stock price, if available, is the best indicator of fair value. But even when a stock price is available, other, more traditional methods of fair value, such as discounted cash flow, must also be considered. The challenge lies in supporting these other methods in the current environment of declining prices.With the release of FASB Staff Position (FSP) FAS 1 152 and FAS 1242,Recognition and Presentation of OtherThanTemporary Impairments, in April 2009, panies are able to bifurcate certain losses on debt securities classified as heldtomaturity or availableforsale between the portion related to credit conditions and the portion related to noncredit conditions. The noncredit portion will be recognized on the balance sheet until the debt security matures or is sold. In many situations, the amount reclassified to the balance sheet will include losses previously recognized in other periods. This new rule has caused controversy among practitioners and standards setters, primarily because it delays the inevitable recognition of those losses in earnings when the debt security is sold or matures.Freshstart accounting. Companies petitioning for Chapter 11 bankruptcy need to know whether they will qualify for fresh start accounting based on their reorganization value according to the provisions of AICPA Statement of Position (SOP) 907, Financial Reporting by Entities in Reorganization Under the Bankruptcy Code.SOP 907 provides a twostep test. The first step requires a parison of reorganization value with the value of postposition claims and obligations immediately prior to court confirmation. This balance sheet solvency test is a moving target throughout a bankruptcy proceeding, because there may be large fluctuations in reorganization value and claims until the plan is implemented. The second step requires that holders of existing mon shares immediately before court confirmation have, as a group, less than 50% of the new pany39。s shares upon emergence from bankruptcy. The challenge here involves the negotiations that take place between debtor and creditor mittees and the pany, which are then subject to final court approval.Illiquid securities. When determining fair value, panies must consider the frequency with which securities are traded. Fair value is more readily supportable for a frequently traded security than for one that is thinly traded because SFAS 157 emphasizes the importance of observable prices.Today, a pany39。s desire to hold a position, together with its requirement to value that position, is causing a unique anomaly in the valuation world, as securities that would otherwise trade normally are increasingly subject to writedowns. A good valuation model must take into account all facts and circumstances. For example, when the market is dry for a specific illiquid security, the valuation methodology must consider any widening credit spreads, liquidity premiums from the time of the last active trading activity to the thencurrent indications, and discount rates implicit in nonbinding broker quotes.With the finalization in April 2009 of FSP FAS 1574, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions that Are Not Orderly, panies