FASB statement on fair value measurements

Purpose – This paper sets out to describe the FASB Statement on Fair Value Measurements (FAS 157). Design/methodology/approach – Explains the Statement's definition of fair value, the three valuation techniques pre‐scribed by the Statement, a fair value hierarchy established by the Statement, a valuation method used when inputs are based on bid and ask prices, and disclosures required by the Statement to enable users to assess the inputs used to develop fair value measurements. Findings – The Statement identifies three valuation techniques: the market approach, the income approach, and the cost approach. The Statement establishes a fair value hierarchy based on whether the inputs are “observable” or “unobservable”. Originality/value – Explains a new accounting statement that may change some accounting practices of investment companies and broker‐dealers.