As noted on the FEI blog, FASB is taking more steps towards addressing fair value.  Specifically, the organization has released staff positions that will help assess the environment and make appropriate determinations.  This kind of proactivity helps FASB to at least appear as if they’re prioritizing the issue, which we wondered about on MFA’s Business Insights back in January.

As we continue to adapt to the downturn, there are a number of factors around the valuation of companies that are coming into play and, in the end, motivating leaders to re-value options.  We’re seeing this trend develop in real time, and it prompted us to put pen to paper for our most recent Perspectives article, “Giving Stock Options A Second Look: The benefits of new grants at low values.”

In a nutshell, there is some opportunity that comes with economic free-fall: those companies that provide options are now in a position to get a new valuation and re-energize their workforces with incentives.  That means that even as downsizing and paycuts spread out across the country, management still has the power to provide strong compensation packages.

As we write in the article:

When the profits don’t exist to pass on in the way of high compensation, stock options are routinely used to incentivize the employee base and retain key people. With fair values near rock bottom, companies are seizing this opportunity to strategically grant additional options or reprice existing stock options.

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The question of whether fair value is, well, “fair” could be sorted out sometime soon, although the priority placed on addressing the issue remains in question.  This is reflected nicely in a pair of CFO Magazine articles that paint a picture of a true tug-of-war going on from ocean to ocean.

As the magazine writes in its January 20 article, What’s More Important than Fair Value? Plenty a panel of experts from the Financial Crisis Advisory Group (FCAG), assembled by the International Accounting Standards Board and the Financial Accounting Standards Board, met in London to discuss where the focus should lie over the next year:

The call to shut down fair-value accounting, especially for financial instruments in illiquid markets, may be waning…For his part, former U.S. Securities and Exchange Commission chairman and FCAG cochair Harvey Goldschmid said that the group had reached something of a consensus about keeping fair value accounting, but working to improve it.

On the other hand, the magazine also reported on January 16 in Volcker Calls for a New Look at Fair Value that a new report by the Group of 30 suggested a greater sense of urgency.  It states:

Calling for a fresh look at current mark-to-market financial reporting rules, Paul Volcker, a top economic adviser to President-elect Obama, has signed off on a financial-reform program more sympathetic to bankers’ views than the current Financial Accounting Standards Board’s fair-value regime has been thought to be.  The group [of 30 recommends that] fair value accounting principles and standards should be reevaluated with a view to developing more realistic guidelines for dealing with less liquid instruments and distressed markets.

We will continue to monitor the seesaw of motivation; as the new administration begins work, will fair value modifications rise to the top of the To Do list?