Buried in more urgent priorities around measuring financial instruments at fair value, the Financial Accounting Standards Board has decided to abandon a project that sought to define where entities could elect fair-value measurement for nonfinancial instruments.

In early 2007, FASB adopted Financial Accounting Statement No. 159: The Fair Value Option for Financial Assets and Financial Liabilities to allow entities to make some choices about where they would measure instruments at fair value. The intention was to simplify accounting for derivatives and resolve a mismatch in measurement approaches that led to artificial earnings volatility.

FASB was still toiling on a second phase of the fair-value option project, however, in trying to define when companies could also elect fair value to measure non-financial instruments, such as commodities. FASB representative Chris Klimek said the board decided to suspend the project “based on the board’s priorities and resources,” including the current fury over using fair value to measure financial instruments. “The board is taking a look at all of its priorities and deciding what it should be taking care of immediately,” she said.

The board has not suspended work on a separate fair value project related to non-financial assets, Klimek said. The board is redeliberating a proposed staff position to amend ARB No. 43, Restatement and Revision of Accounting Research Bulletins, to require that inventories included in an entity’s trading activities be initially and subsequently measured at fair value, with changes in fair value recognized in earnings.