During FASB Research Office Hours on Tuesday, March 10, Leslie Seidman, FASB Board member, suggested the following questions as being of interest to the FASB regarding fair value measurement for liabilities. I believe that these questions are interesting and potentially addressable from multiple research perspectives. Moreover, I believe that work on these questions has the potential to contribute to both the academic literature as well as to standard setting deliberations.

  • When valuing a business, do investors adjust liabilities to a hypothetical exit price? Leslie argued that when investors value mutual funds, they do not measure the liabilities at fair value, and thus the question arises whether it would make sense for investors to do so in other contexts.
  • Would the propensity of investors to consider estimated exit prices for liabilities differ depending on the type of business?
  • In the context of SFAS No. 159 (the fair value option), how have investors responded to companies’ elections to use fair values for liabilities? Which companies have made such elections, and why?
  • How do investors interpret at the earnings release date the component of earnings that reflects fair value adjustments to liabilities when the related disclosures of those remeasurements may not be made available until the subsequent 10-Q or 10-K filing?

Regarding revenue recognition, Leslie was asked by a member of the audience which industries would likely experience the greatest impact on their reported revenues from an accounting change as reflected in the FASB/IASB’s Discussion Paper, “Preliminary Views on Revenue Recognition in Contracts with Customers.” Might it be possible for empirical researchers to shed light on this question? Moreover, how would we expect contracts among firms to change if the discussion paper’s model for revenue recognition were to be adopted as a standard? How might equity or debt valuations or credit ratings change if such a change in accounting were to occur?

I find each of these questions interesting. If you are interested in talking about them further, please feel free to contact me: rjpfeiffer@fasb.org And if you have research relevant to these questions or know of existing working papers or published articles that are on point, please write a comment including references.