Thanks for the comment. For those interest in more, I suspect this is the article Scott is referring to:

Accounting Is for Investors

Many institutions and companies continue to say that securitizations must achieve off-balance sheet accounting to get the credit markets flowing again. Historically, bank regulators, because they looked to GAAP measures in regulatory calculations, effectively added pressure to FASB to facilitate off-balance sheet accounting, and GAAP had been specifically crafted in response to these pressures. In fact, the QSPE was introduced to ensure that the certain kinds of securitizations could be off balance sheet. And the permitted uses of QSPEs expanded, officially and unofficially, over the years to provide off-balance sheet treatment to more and more transactions. The lenient accounting encouraged transactions that led to the crash of the mortgage-backed securities markets.

In almost every instance, users of financial statements disagreed with the continued facilitation of derecognition, and the transactions were often “reversed” by credit analysts and others. FAS 166 and 167 show that FASB has listened to financial statements users and resisted the pressure to continue to provide an accounting motivation for securitizations.

In addition, bank regulators seem to have retreated from pressuring FASB to change GAAP to achieve regulatory goals. The Federal Reserve has noted that it is reviewing regulatory capital requirements in response to the new standards. That’s good news. If the standards are in investors’ best interests, they should stand. If those same standards don’t work for regulatory purposes, the regulators should adjust as necessary.

I can only hope that companies follow this lead by accepting and dealing with the new standards, rather than fighting them for reasons having nothing to do with effective financial reporting.

From: FASB’s New Start on Old Menace to Balance Sheets. Scott Taub. Compliance Week. New York: Aug 2009. Vol. 6, Iss. 67; pg. 1, 3 pgs

But internally-generated R&D and marketing get at the distinction I am making: the term fair value measurement makes it clear that it doesn’t in any way force recognizing an asset for those expenditures.

Fair value measurement differs from other measurement methods in both the timing of asset remeasurement, and the number you could come up with.

So thanks for the comment, which clarifies that while we shouldn’t lump together FV accounting and FV measurement, we also shouldn’t lump together the timing and value aspects of remeasurement.

If I understood Rob correctly, he would change your last sentence to say they “get very uneasy when one starts applying fair value accounting to operating assets.”

With our current impairment models, we already use fair value measurements for operating assets on occasion. But those are one-off measurements that do not change the primary means of accounting for the assets.

Disclaimer: The views expressed here are my own and do not represent positions of the Financial Accounting Standards Board. Positions of the FASB are arrived at only after extensive due process and deliberations.

As for your quibble, I am curious how your definition of “fair value accounting” differs from “fair value measurement.” If one defines the former as “net recognized assets of the company must equal market capitalization at each reporting period,” then I agree that the two are VERY different. Otherwise, the difference is somewhat hazy for me. For example, current accounting allows recognition of inventory and patents as assets. Fair value measurement (other than possible impairment) is currently not applied to these two types of assets. But if it were, then profit recognition could occur earlier than under current practice approaches simply by changing the measurement basis for inventory and patents.

One way to think about this is that over the life of a transaction/activity/project, fair value and historical cost measurement should produce similar measures of performance (e.g., income or cash flows). Initial recognition under both approaches generally occurs at fair value (e.g., buying a piece of inventory), and the proceeds received in subsequent transactions (e.g, selling a piece of inventory) are recorded at fair value (eventually). The real difference in that fair value measurement recognizes profit or loss for a specific transaction/activity whenever evidence exists that fair value has changed, which is likely to be almost continuous. Under historical cost, recognition is either based on a transaction being consumated or on some allocation of past transaction amounts over time (e.g.depreciation).

This differential timing opens the door for profits to be recognized earlier if fair value measurement is applied. While quite a few people are willing to consider fair value for financial instruments (which are the assets being considered in Laux and Leuz), a lot of folks (including me, most FASB members I have talked to, and the folks you mention in your quibble) get very uneasy when one starts applying fair value measurement to operating assets.