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GAAP is Undergoing Significant, Comprehensive Changes
Don't Let Your Professional Skills and Knowledge Become Obsolete!
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A critical two-day update for financial professionals focusing on:
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- The Bear Stearns Meltdown – Case Study on What Went Wrong and Why
- Lessons Learned from Early Adopters – Avoiding the Pitfalls
- The New GAAP Definition of Fair Value – It’s NOT Market Value
- Mark-to-Model Accounting and Probabilistic Forecasting
- Definitions, Scope, Context and Implementation of FAS 157
- How to Use FAS 159 – “The Fair Value Option” – to Benefit Your Firm
- Valuation Methodologies, Techniques and Tools – What to Use,
When to Use It
- How FAS 157 Changes Over 50 Previous GAAP Pronouncements
- Modeling Components, Techniques and Controls for Fair Value Accounting
- How (and Who) to Validate or Audit the Model’s Components – An Audit Guide
- FAS 133, Derivatives, Risk Management Techniques and Hedge Accounting
- FAS 141 (R) – New Accounting for M&A and Business Combinations
- New GAAP Disclosure Requirements for Both Financials and Footnotes
- Today’s Mixed Attribute Model, Future Directions and IFRS Convergence
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FAS 157 - Prior v. Current Practice
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- Investments and Long Term Debt
- Derivative Assets and Liabilities
- Business Combinations, Goodwill and Intangible Assets
- Long-Lived Assets Held and Used
- Asset Retirement Obligations
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Review of FAS 157 Appendix D –
All APB and FASB Fair Value Pronouncements
Amended by FAS 157
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Recent Fair Value Related Items
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- FAS 155: Accounting for Hybrids
- FAS 156: Accounting for Servicing of Financial Assets
- FAS 157: Fair Value Accounting
- FAS 159: The Fair Value Option
- FASB Valuation Resource Group Formed
- FAS 141(R) – New Accounting for Business Combinations
- Phase 2 of the Fair Value Option
- Convergence with IFRS
- Reasons FAS 157 is Necessary
- Effective Implementation Dates
- Lessons Learned from Early Adopters
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Framework/Flowchart for FAS 157
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- Determine Unit of Account
- Determine Potential and Appropriate Markets for Basis of Valuation
- Apply the Appropriate Valuation Techniques: Market, Income or Cost
- Determine and Disclose Fair Value
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“Operationalizing” Fair Value
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- Fair Value Methodology – Design, Documentation and Approval
- Eight Critical Implementation Issues
- Essential Disclosure Requirements
- Typical Valuation Models and Tools
- Identifying Data Sources – Observable and Other
- Valuation Process – Integration with Financial Statement Preparation
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The Scope of FAS 157
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- In Scope - Financial
- Investment Securities – FAS 115
- Derivatives – FAS 133
- Security Short Sales and More
- In Scope – Non Financial
- Assets and Liabilities Measured at Fair Value Under FAS 141
- Impairment Test – FAS 142 and 144
- Items Not In Scope
- FASB Staff Positions for FAS 157
- FSP FAS 157-b
- Non-recurring Measurements for Business Combinations
- Intangibles, Impairment Measurement and FAS 142
- Asset Retirement Obligations – FAS 143
- Liabilities for Exit/Disposal – FAS 146
- FSP FAS 157-c
- How to Measure Liabilities
- Substitutes to Measure Liabilities
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Navigating the Fair Value Hierarchy
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- Purpose of the Three-Level Hierarchy
- Prioritizing Inputs for Valuation
- Maximize Observable Market Data
- Classification for Disclosure
- Observable vs. Unobservable Inputs
- Level 1: Active market
- Level 2: Observable, Derived or Corroborated
- Level 3: Unobservable, Entity Specific – Exit Price Per Seller
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New Definition of Fair Value
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- Assets, Liabilities, Sale, Transfer, Risk, Use and Market Participants
- Market Identification, Principle Markets and Transaction Costs
- Highest and Best Use vs. Defensive Value, Stand Alone and Combinations
- Unit of Account vs. Unit of Valuation
- Portfolio Level Adjustments
- Disclosure Implications
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Valuation Techniques
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- Market and Cost Approach
- Income Approach Using Black-Scholes
- Consistency and FAS 154
- Other Guidance: Block Discounts, Restricted Assets, Bid & Ask Prices
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New Disclosure Requirements
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- Relationship to Three-level Hierarchy
- Recurring vs. Non-recurring Examples
- Required Qualitative Information
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FAS 133: Understanding Derivatives
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- Basic Characteristics and Risk Management Strategies
- Futures and Forwards
- Interest Rate, Stock Options, More!
- Caps, Collars, Floors and Swaps
- Implementation Issues, Disclosure Requirements Including FAS 161
- Clarification of the Short-cut Method: When, How and Who Can Use It?
- Understanding Embedded Derivatives and Bifurcation
- Convertible Debt/Preferred Stock
- Accounting Guidance - EITF 00-19
- Understanding Hedges
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FAS 157 Practice Considerations
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- Fair Value of Liabilities, Credit Rating and Measurement per FSP FAS 157-c
- Collateral Guarantees
- Interest Rates, Credit Spreads, and More!
- Disclosure Requirements
- Fair Value of Cash Flow Hedge: Unit of Account, Principal Market, Valuation Technique, Accounting Issues
- Calibrating the Pricing Model to the Transaction Price
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Hybrid Instruments and Impact on
L-T Debt Valuation: FAS 155
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Understanding FAS 159 – The Fair Value Option (FVO)
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- Fair Value Evolution: 1990 – 2008: FAS 105, 107, 115, 119, 133, 140, 155, 157, 159
- Objectives of the FVO and Impact on Earnings - Advantages
- How To Use the FVO Election
- Required Documentation
- Prohibited Instruments
- Instruments Within/Outside of Scope
- Categories of Assets and Liabilities: Level 1, 2 and 3
- Disclosure Requirements – Financial Statements and Footnotes
- Implementation Issues
- Income Recognition: 3 Methods
- Liquidation of Impaired Assets – Loss Recognition Options
- SEC Focus
- Adoption Strategies
- Portfolio Enhancement Strategies
- Disappearing Losses – Bypass the P&L – Go Directly to Ret. Earnings
- Audit Considerations
- FVO for Equity Method Investments
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Fair Value Modeling
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- FVO and Model Reliance
- Instrument Values in Level 2 and 3
- “Mark-to-Model” vs. “Mark-to-Market”
- Fair Value Model Implementation Steps
- Fair Value Methodology
- Valuation Models and Tools
- Valuation Process
- Challenges and Issues
- Modeling Fair Value of Issued Debt
- Modeling Derivative Fair Values
- Modeling Uncertainty – Market, Input and Model Uncertainty
- Typical Pitfalls
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Model Validation Components – Auditing the Model
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- Theoretical Foundation
- Leading Practice Compliance
- Examples: Simulation Integrity Tests, Foundation Assessment
- Inputs, Assumptions and Estimates - Examples: Yield Curves, Risk, Historical Volatility and Correlations
- Model Implementation and Calculation
- Testing of Model Outputs
- Back Testing to Client Results
- Examples: Independent Derivative Valuation, Recalculation of Exposures and Risk Statistics
- Model Outputs and Reports
- Assessment of Reporting/Usage
- Examples: Risk/Capital Reports, Potential Exposure Profiles and Statistics
- Model Control Environment
- Controls, Documentation and Benchmarks
- Examples: Master Model Inventory and Related Testing
- Who Performs Model Validation: Risk Mgmt. v. Internal Audit
- Sample Model Validation Areas and Success Factors
- Asset/Liability Management
- Modeling the Economic Value of Equity (EVE)
- Net Interest Income (NII) Simulations
- Modeling Liquidity and Funding Sources Mix
- Hedging with Derivatives
- Market Risk Measurements – VaR, Limit Setting, Stress Testing
- Accounting: FAS 91 – Effective Yield, FAS 133 – Model Testing/Analysis, FIN 46 – Modeling for Consolidation, FAS 155 – Structured Debt Valuation, FAS 157 Fair Value Modeling
- Measuring Credit Risk
- Effective Controls and Documentation
- Auditing Restricted Proprietary Models
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Technology Apps. for FAS 157
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- Data Warehouse Including Scenario Analysis and Embedded Rules and Assumptions
- Model Validation – I/O, Assumptions and Calculations
- Exception Identification
- Software Packages – Institutional Reporting and Investor Reporting
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Controls – Definition, Objective and Assessment
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- Level 1 and Level 2 Controls
- Level 3: Model Validation and Key Requirements
- Common Model Valuation Issues
- Controls Assessment Approach
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Understanding the Bear Stearns Meltdown
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- FAS 157 Issues for Subprime Securitization Markets, QSPE, Tranches and Superior Senior Debt
- Key Price Considerations, Ratings, Liquidity and Risk Adjustments
- Valuation of Mortgage Loans
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Conclusion: Reliability vs. Relevance
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- Mixed Attribute Model and Future Plans
- FVO for Real Estate and Non-Financial Items
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CPE Credits
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This group-live seminar is recommended for 16 hours of Accounting and Auditing credit.
The National Center for Continuing Education is registered with the National Association of State Boards of Accountancy (NASBA), as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of accountancy have final authority on the acceptance of individual courses for CPE credit. Complaints regarding registered sponsors may be addressed to the National Registry of CPE Sponsors, 150 Fourth Avenue North, Suite 700, Nashville, TN, 37219-2417. Visit the NASBA web site at www.nasba.org.
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This state-of-the-art workshop is designed for accounting and financial professionals including:
- CFO’s, Controllers, Treasurers, CPAs, CFAs, Auditors and Accounting Staff
- Financial Directors, Managers, Analysts and their Staff
- Entire M&A Team, Valuation Analysts and the Strategic Planning Department
- Investment Bankers, Portfolio Managers, Government Regulators
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Seminar Prerequisites
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Course Level: Intermediate
Prerequisites: Basic knowledge of GAAP and
financial statements. No Advanced Preparation Required.
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If you have a group of 12 or more employees who need to learn Understanding the
New Fair Value Accounting: FAS 157/159
or need other financial training, then NCCE’s
customized training is the cost effective solution.
Bring this seminar in-house to transform
your finance and accounting department into
a world-class operation.
For more information or to schedule a custom in-house program, e-mail NCCE at contact@nccetraining.com or telephone 800-635-9615.
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