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A Standard Setting Perspective on Current Issues Facing the Accounting Profession - page 21 / 29

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Fair value measures

Intent is to increase the relevance of reported numbers

Only measurement attribute for certain derivatives

Example:   Interest rate swap

Most relevant attribute for (many) incomplete transactions

Alternative is allocations of transaction amounts

Examples:  EITF 00-21 (revenue recognition); SFAS 140 (retained interests in securitizations)

These allocations require their own estimations (which may be based on fair values) and so are not free of estimation error

Key issues

What is the actual reliability of fair value measures?

How reliable are fair value measures compared to the reliability of other reported numbers that are based on estimates and judgments?

What are the auditing considerations?

What are the causes of unreliable measures?

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