Frustrated by a seizure in judgment and duress from Congress, the Financial Accounting Standards Board is rushing through two new pieces of guidance intended to help grease the wheels of a stalled economy.

The board met in an unusual Monday morning meeting to hash out guidance that will define when markets are inactive, therefore not alone indicative of fair value, and how entities can reflect impairments or declines in fair value in a way that distinguishes between actual losses and other factors not directly impacting earnings.

The first piece will outline the factors entities should consider in determining, in the context of Financial Accounting Statement No. 157, Fair Value Measurement, whether recent transaction prices should be regarded as “distressed” and therefore not an adequate yardstick alone for establishing fair value. The guidance will direct entities to consider factors such as transaction volume, the age of information, variations in price quotes, correlation of indices with recent fair values, liquidity risk premiums, bid-ask spreads, and the visibility of information to the public when determining if a market for a given asset is active.

“The underlying problem here, of course, is a lot of classes of securities have inactive, problem markets,” said FASB Chairman Robert Herz. “There’s no single silver bullet, except get all the information you can and make a judgment. We’re trying to help people through that process.”

Board member Leslie Seidman said the guidance does not alter FAS 157, but provides implementation guidance to help distinguish between distressed transactions and distressed markets. “(FAS) 157 already says right now that a price from a forced sale or distressed transaction does not represent fair value,” she said. “What we’re talking about here is how do I know when I have one of those? And if I do have one of those, what do I do?”

Seidman said the new guidance will not provide an escape from FAS 157’s call for an exit price, or the price an entity would receive in an orderly transaction, in establishing fair value. “It doesn’t mean I’ve identified a distressed transaction and now I can estimate cash flow any way I want to,” she said. “Your objective should not be essentially to derive a fair value that’s based off the transaction price we just said is distressed. Don’t use that data point alone any more. Instead, use other sources of information and estimate fair value that still represents fair value.”

Board member Tom Linsmeier said he was frustrated by the tone of the House subcommittee hearing last week that compelled FASB to rush through the new guidance. During the hearing, Herz faced an agitated panel threatening to alter accounting rules through legislation if FASB didn’t produce new guidance in a hurry.

“The frustration was an assertion that we had done nothing in recognition of these issues over time,” he said. “That’s absolutely not the case.” In October, FASB published guidance that provided instruction on how to reach fair values when markets are inactive, though it didn’t provide detailed guidance on how to define when markets are inactive.

Linsmeier said he believes other factors are at play that inhibit the use of judgment, for example a “check-box mentality, or maybe auditing liability issues—factors in the system that caused people not to do the work … This is consistent with where we were in October. We’re just changing the focus of the evidence and forcing people to think about the orderly transaction price more thoroughly.”

With respect to impairments, the board’s guidance will provide a means for entities to reflect in financial statements where losses stem from credit losses. The intent is to address concerns raised by banks and other financial institutions that it’s difficult to assess the likelihood that a particular security will recover in value and to assert that it plans to hold the investment long enough for it to recover.

David Larsen, managing director at Duff & Phelps and a member of FASB’s Valuation Resource Group, said the two pieces of guidance do not represent significant departure from FASB’s stand on how fair value should be measured or impairments reflected. “With both documents, the concepts therein have been in play and under discussion for a number of months,” he said. “The Congressional hearings may have accelerated the timing, but it did not really add any new content.”