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Definition: FASB 157
A Financial Accounting Standards Board (FASB) statement that defines fair value, it institutes structure to measure the fair value and provide guidelines for the fair value measurements.
Before issuing the FASB 157 statement there were various guidelines to calculate the fair value and apply them to generally accepted accounting principles. These guidelines were spread among various statements. To avoid the inconsistencies and complexities in applying the fair values to GAAP, the board issue this statement. A single definition of fair value and frameworks to measure it provide better comparability and consistency in fair value measurements.
This statement has defined three categories of assets: Level 1, 2 and 3. Level 1 are the simplest and easiest to value assets and level 3 assets are the most complex. Many firms have faced issues in valuing Level 3 assets in the recent recessions due to decline in value of assets. The FASB 157 helps investors and regulators the accuracy in company’s asset valuation.