Are you prepared to meet the FAS 157 reporting requirements?

Financial Accounting Standards Board (FASB) Statement 157 provides guidance for determining fair value estimations for financial reporting purposes—effectively, requiring the use of certain methods to ensure greater consistency and structure for measuring fair value. Under FAS 157, firms must value assets at fair value rather than at historical cost, meaning that investments must be valued as if they were sold today.

• Are you aware of the impact that FAS 157 will have on your valuation procedures?
• Is your firm prepared to adapt to the standards of fair value reporting?
• Given the increased complexities of compliance with FAS 157, do you have the right tools and processes in place to handle investors’ demands for more frequent and consistent reporting?
• Do you find that your staff is spending more and more time developing reports and less time analyzing deals and portfolio company operations?

Significant implications for private equity firms.

Unlike the previous rule-based guidelines, the FAS 157 guidelines are principle-based, injecting greater subjectivity into the process for valuing assets. This increases private equity firms’ disclosure requirements substantially and, in turn, the demands on their resources. To manage the effort involved, private equity firms must develop scalable processes for gathering, producing, and delivering information to investors and auditors. They also will require more internal coordination in order to prepare accurate valuations.

Your best course of action depends on your environment and investment portfolio.

To comply with the new regulations, in an efficient manner, private equity firms should take steps now to:

• Understand FAS 157 regulatory reporting requirements.
• Establish compliant methods for defining fair value and documenting conclusions.
• Define efficient reporting processes that minimize manual tasks.
• Define the resources required to meet compliance reporting requirements.
• Define the role of software in your reporting process and select an appropriate software solution for their environment.