Without the ability to reliably measure the financial

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The difference is the impairment charge. Without the ability to reliably measure the financial assets and financial liabilities, determination of the amount of goodwill impairment cannot be reliably determined. Were such measurements of impairment charges not reliable because they were based on fair value measurements for such financial instruments? 3) Fair Value Application in Certain Asset Impairment Testing When certain, not all, assets are impaired they are written down to fair value. How can fair value measurements be appropriate and reliably estimated when determining impairments but not routinely for recognition of financial instruments? Why is there an asymmetrical application of fair value accounting? 4) Fair Value Measurements of Pension Assets Pension plan assets are measured at fair value and are netted against the pension obligation to arrive at the net pension asset/obligation that impacts common equity. With the implementation of new disclosures in 2009, pension assets such as loans, real estate and private equity investments have been fair valued as Level 3 measurements. How can such assets be reliably measured for pension plans but not by entities sponsoring the plan? 5) Fair Value Option Many argue financial liabilities cannot be reliably measured at fair value, yet with the issuance of SFAS 159, The Fair Value Option for Financial Assets and Financial Liabilities, a significant number of large financial institutions elected the fair value option and were able to measure selected financial liabilities at fair value. When there is a will to measure at fair value, or a perceived benefit to an entity‟s financial conditi on, there seems to be a way to measure at fair value. We would prefer such the measurement not be optional as accounting optionality is not investor friendly. 6) More Complex Instruments Are Already Measured Using Fair Value Presently, there are many debt and equity securities as well as derivatives valued as Level 3 fair values. Such valuations include private placement debt securities, below investment grade debt securities, bank loans classified as securities by life insurers, embedded derivatives and other complex derivatives. These instruments were not the subject of the fair value measurement debate which ensued during the financial crisis because they were always Level 3 measurements. Rather, instruments at the center of that debate were Level 2 instruments for which there were observable prices, but they were prices which preparers claimed were distressed, disorderly or inactive markets. Many argued that such prices should be ignored and Level 3 measurements utilized. Given the proliferation of complex instruments which are already measured at fair value utilizing Level 3 techniques and which are not necessarily held for trading purposes why can‟t loans be fair valued reliably?
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  • Fall '15

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Christopher Reinemann
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