Defining Fair Value Processing

This topic provides an overview of fair value processing and lists the pages used to define fair value processing for PeopleSoft Asset Management.

Page Name

Definition Name

Usage

Fair Value Valuation Methods Page

AM_FV_METHOD

Define the fair value valuation methods to be used in fair value processing in accordance with FAS 157.

Fair Value Groups Page

AM_FV_GROUP

Define fair value groups by business unit to be used in fair value processing in accordance with FAS 157.

Fair Value Templates Page

AM_FV_TEMPLATE

Define fair value templates by business unit by selecting the fair value valuation method, valuation premise, input level and fair value group ID.

Financial Accounting Standards (FAS) 157 establishes a framework for measuring the fair values of assets and liabilities and how to disclose them for the financial statements. It is effective for financial statements issued for fiscal years beginning after November 15, 2007. Asset Management supports fair value processing for international customers as well as providing the following solution in compliance with FAS 157 for U.S. companies:

  • Standardized parameters when loading and capturing fair values in accordance with FAS 157.

  • Appropriate fair value processing for revaluation, impairment and leases.

  • Corresponding fields and prompts on the Fair Value page.

    See Capturing and Maintaining Asset Fair Value.

  • Reports for disclosure of fair values: Fair Value Activity Report and Fair Value Detail Report.

  • Setup pages for fair value valuation methods, fair value groups and fair value templates.

Use the Fair Value Valuation Methods page (AM_FV_METHOD) to define the fair value valuation methods to be used in fair value processing in accordance with FAS 157.

Image: Fair Value Valuation Methods page

This example illustrates the fields and controls on the Fair Value Valuation Methods page. You can find definitions for the fields and controls later on this page.

Fair Value Valuation Methods page

Use this page to establish various valuation methods that are used to capture the most representative fair values for an organization, whether they be valuation techniques as defined by FAS 157 or any global techniques.

Field or Control

Definition

Approach

Select from the following fair value approach values to be used for the valuation method:

  • Cost - This approach is based on the amount that is currently required to replace the service capacity of an asset (commonly referred to as current replacement cost).

  • Income - This approach uses valuation techniques to convert future amounts (cash flows or earnings) to a single present amount (discounted). The measurement is based on the value indicated by current market expectations about those future amounts.

  • Market - This approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities (including a business).

  • Other - This is not a FAS 157 approach, but can be used to define a method other than those that are specified in the U. S. pronouncement.

Input Type

Select from the following input types for the valuation method:

  • Observable - inputs that reflect the assumptions that market participants use in pricing the asset or liability developed based on market data obtained from sources that are independent of the reporting entity.

  • Unobservable - inputs that reflect the reporting entity's own assumptions about the assumptions market participants use in pricing the asset or liability developed based on the best information available in the circumstances.

  • Other - This input type is not defined by FAS 157, but can be used to define an alternate input type for organizations that are not subject to U.S. pronouncements.

Use the Fair Value Groups page (AM_FV_GROUP) to define fair value groups by business unit to be used in fair value processing in accordance with FAS 157.

Image: Fair Value Groups page

This example illustrates the fields and controls on the Fair Value Groups page. You can find definitions for the fields and controls later on this page.

Fair Value Groups page

Use this page to establish groups of assets for valuation processing when their valuation premise is In Use.

Use the Fair Value Templates page (AM_FV_TEMPLATE) to define fair value templates by business unit by selecting the fair value valuation method, valuation premise, input level and fair value group ID.

Image: Fair Value Templates page

This example illustrates the fields and controls on the Fair Value Templates page. You can find definitions for the fields and controls later on this page.

Fair Value Templates page

Use this page to establish default values when you add fair values from a page other than the online Fair Value page.

See Capturing and Maintaining Asset Fair Value.

Field or Control

Definition

Valuation Method

Select a valuation method defined from the Fair Value Valuation Method page. The valuation method allocates valuation techniques. This can be a valuation method according to FAS 157 or a combination of valuation techniques.

Valuation Premise

Select from the following valuation premise values:

  • In Use - Select if the asset would provide maximum value to market participants principally through its use in combination with other assets as a group (as installed or otherwise configured for use). For example, this may be the case for certain nonfinancial assets. If the highest and best use of the asset is in-use, the fair value of the asset shall be measured using an in-use valuation premise. When using an in-use valuation premise, the fair value of the asset is determined based on the price that would be received in a current transaction to sell the asset assuming that the asset would be used with other assets as a group and that those assets would be available to market participants. Generally, assumptions about the highest and best use of the asset should be consistent for all of the assets of the group within which it would be used. When selecting the In Use valuation premise, you must designate a Group By value.

  • In Exchange - Select if the asset would provide maximum value to market participants principally on a standalone basis. For example, that might be the case for a financial asset. If the highest and best use of the asset is in-exchange, the fair value of the asset should be measured using an in-exchange valuation premise. When using an in-exchange valuation premise, the fair value of the asset is determined based on the price that would be received in a current transaction to sell the asset standalone. Since the asset is valued on a standalone basis using the In Exchange valuation premise, the Group By field is unnecessary and becomes unavailable for selection.

Input Level

Select from the following input levels:

  • Level 1 - Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.

  • Level 2 - Level 2 inputs are inputs other than quoted prices that are included within Level 1 that are observable for the asset or liability, either directly or indirectly.

  • Level 3 - Level 3 inputs are unobservable inputs for the asset or liability. Unobservable inputs are used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date.

Group By

This field is available only when the valuation premise is In Use. Select to group the fair value of assets by the following:

  • Cash Generating Unit

  • FV Group ID

  • Group Asset ID

  • Parent ID

FV Group ID (fair value group ID)

Select the applicable FV Group ID value, which is required when selecting to group by FV Group ID, Group Asset ID or Parent ID. The prompt values differ depending on your selection in the Group By field. For example, if you select to group fair values by Parent ID, you are prompted with the available Parent IDs from which to select. If you select Cash Generating Unit for the Group By field value, the FV Group ID becomes unavailable.