Mission 157

As the November 15 deadline for adopting Statement No. 157 for
fair value measurements nears, the US Financial Accounting Standards
Board has formed a valuation resource group in an effort
to assess whether and to what extent additional and more specific
valuation guidance is needed for financial reporting.
Duff & Phelps managing director David Larsen was named as
the private equity representative to the group. Larsen is a member
and champion of the Private Equity Industry Guidelines Group
(PEIGG), a voluntary alliance of private equity practitioners set up
to help the industry to understand and implement FASB’s fair value
guidelines in the US.
Fair value, defined by FASB Statement No. 157, is “the price that
would be received to sell an asset or paid to transfer a liability in
an orderly transaction between market participants at the measurement
date.”
Larsen has often described the new fair value guidelines as “increasing
the wattage of the light bulb shining on the fair value issue.
It doesn’t change the need for fair value, but it will increase
the visibility that fair value receives from private equity managers,
investors and auditors.”
FASB’s resource group consists of 25 representatives from the Big
Four and small audit and valuation firms, financial services institutions
and corporations. Also represented on the board are organizations
including the International Valuation Standards Committee,
International Accounting Standards Board, Securities and Exchange
Commission, the American Institute of Certified Public Accountants
and the CFA Institute.
Larsen has been actively working with Stephen Holmes, chief financial
officer of InterWest Partners in Menlo Park, at PEIGG. In
March this year, PEIGG updated its valuation guidelines for the
US private equity industry. The updated guidelines are intended to
be consistent with US GAAP and conceptually in harmony with
the International Private Equity and Venture Capital Valuation
Guidelines developed by the Association Française des Investisseurs
en Capital (AFIC), the British Private Equity and Venture Capital
Association (BVCA) and the European Private Equity and Venture
Capital Association (EVCA) in March 2005.
The updated guidelines include the elimination of a bias to write
things down more quickly than up, the fact that inside rounds of financing
need to be taken into account in fair value determination, a
prohibition on liquidity or blockage discounts and a prohibition on
including transaction expenses in the determination of fair value,
according to Larsen.
FASB’s valuation resource group was formed in June. The group’s
first meeting is expected to be held in October 2007 at FASB’s headquarters
in Norwalk, Connecticut.