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FAS 157: Little Impact on Commercial Acquisitions

Recently revised guidance to fair value accounting rules will have a negligible impact on reinvigorating the commercial transaction market. What will have an impact are the various federal stimulus programs.

By Maria Wood | Updated on May 06, 2009

NEW YORK CITY-Recent application guidance to mark-to-market rules approved by the Financial Accounting Standards Board last month will have little impact on thawing the current stagnant credit market for commercial real estate debt securities. Indeed, they may make banks more inclined to hold rather than sell. Of more importance are the various programs promulgated by the Treasury to get toxic assets off the balance sheets of financial institutions.

In April, FASB met to clarify guidance on FAS 157, otherwise known as fair value accounting standards, bowing to pressure from both financial institutions and Congress. These guidelines are meant to give institutions instruction on how to value assets on their books when there is not an active trading marketplace. One of the ways accountants ascertain the value of a security is by reviewing current transactional activity in the marketplace as well as bids or price quotes. With the current recession slashing the worth of those holdings and essentially freezing acquisition activity, banks and other financial entities have been forced to write down the values of assets on their books.

“Many companies holding commercial assets feel that over the past year, the quoted prices really don’t reflect the price that would come about in an orderly sale market,” says Allan N. Krinsman, partner in the financial reform working group of Stroock & Stroock & Lavan LLP here. “They feel it’s a low bid, or a fire sale price, and they should not get caught marking down those assets based on the quoted bids that don’t reflect what would be paid in an active market without distressed sales.” The attorney also notes that these revisions apply to debt securities rather than loans.

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