CPE SESSION 32 - Wednesday, 1:00 PM - 5:00 PM

Financial Instrument Fair Values: Theory and Implementation

Description/Objectives:
The FASB has issued a number of standards in recent years that increase the use of fair values for financial instruments in financial reporting. FAS No. 107 requires disclosure of the fair value of financial instruments. FAS No. 115 requires that securities be carried at fair value with a limited exception for debt securities that are to be held to maturity. FAS No. 140 requires basis allocation using relative fair values for partial transfers of financial instruments. FAS No. 133 requires that all derivative instruments be carried at fair value. The FASB has stated on a number of occasions that its long-term objective of requiring the use of fair value accounting for all financial instruments.

The movement to fair value accounting has met with considerable controversy, including questions about how to measure fair values and how to measure them reliably. This workshop provides an overview of the basic models used to estimate fair values of financial instruments. While the basic models for estimating fair values of financial instruments are conventional and generally well understood, their application requires considerable judgment.

The valuation models to be discussed include: debt instruments; interest rate swaps; equity forwards; foreign currency forwards; option pricing.

These models are applied to various instruments and transactions to illustrate the difficulty of estimating fair values reliably.

Format/Structure:
The workshop will be conducted as an interactive seminar.

Intended Audience:
Individuals who have teaching and research interests in Financial Accounting and Reporting for Financial Instruments and desire a better understanding of valuation techniques and pitfalls.

Presenter:
John T. Smith, Deloitte & Touche

Sponsor:
Financial Accounting and Reporting Section