When FAS 157 took effect last November, many finance departments and business units faced a new accounting requirement but lacked any new technology with which to address it. To determine the fair value of a wide range of balance-sheet items, they turned to that old standby, the spreadsheet, to piece together models that they hoped would make sense to shareholders and auditors.
A year later, not much has changed. Spreadsheets are often still the starting point when trying to figure out what a portfolio of credit default swaps or a series of collateralized debt obligations would fetch on the market. That's a worrisome thought for auditors and CFOs especially because many users construct spreadsheets so poorly that the results may be impossible to verify.
FAS 157 builds on an older rule, FAS 133, which forced companies to divulge the fair value of derivative instruments. But FAS 157 goes a major step further, telling companies how to value the assets and liabilities on their balance sheets that they mark to market.
CFO Magazine, November 1, 2008
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