A Deloitte analysis of fair value reporting for 50 public companies concluded more assets are moving into the gray area of “level 3” valuations, where market pricing has little to no bearing on the values companies place on their financial assets and financial liabilities.

Deloitte studied the 10-Qs of 50 companies in banking, insurance, investment, energy, and other sectors to see what their numbers and disclosures looked like around adoption of Financial Accounting Statements No. 157 Fair Value Measurement and No. 159 Fair Value Option. Both became effective with the beginning of 2008 for calendar-year companies.

FAS 157 sets out a definition of fair value and prescribes a method by which it should be measured. It establishes three levels for measuring fair value, with level 1 prices established based on market pricing and level 3 relying on internally generated assumptions, estimates, and modeling. FAS 159 gives companies the option to report certain financial assets and financial liabilities at fair value, enabling them to use their own judgment about whether fair value is the most relevant measurement method.

Deloitte’s report says the companies did not report significant transition adjustments to retained earnings in adopting FAS 157 or FAS 159 and that there was a great variety in how companies composed their fair-value measurements within the hierarchy. Deloitte also said it found diversity within its sample group around the application of certain disclosure requirements for both FAS 157 and FAS 159.

Given the implementation of FAS 157 and 159 during unprecedented market turmoil and crisis in credit markets in particular, Deloitte said there’s good reason for an increase in assets and liabilities being measured at level 3 and for the diversity in reporting in general.

“We expected you’d see more securities in level 3 than we would have seen when the market was more liquid and robust,” says Thomas Omberg, a partner with the regulatory and capital markets practice at Deloitte. “Generally, the moves we saw were what we would have expected as companies wrestle with these judgment calls.”

Omberg says the analysis found little to suggest companies are overworking a provision in FAS 159 that allows companies to mark their own credit to market pricing, creating a seemingly illogical gain on a drop in its own creditworthiness. “We didn’t see when it was adopted, and we still don’t see, entities making significant use of FAS 159,” he ays. “We didn’t see companies making wholesale adoptions of 159 for significant components of their balance sheet that weren’t significantly at fair value before.”