The rules spelling out how to measure fair value for financial reporting purposes generally work as intended, but it's a costly process to undertake, especially for smaller companies—and not just because the accounting is difficult.

That's the conclusion of a post-implementation review of Financial Accounting Statement No. 157: Fair Value Measurement, adopted by public companies in 2008 just as the financial crisis would make adoption of the new rules all the more complicated. FAS 157 is now codified in the Accounting Standards Codification under Topic 820.

The Financial Accounting Foundation's post-implementation review found investors all over the map in how much they gained from the fair value information produced the standard. Some investors told the review team they struggled to understand fair value information in financial statements. Some investors believed fair value disclosures are too extensive, while others wanted more information.

The report presented to FASB says the review team found stakeholders who believed the changes made to financial reporting and operating practices to implement the standard were significant—especially the incremental burden in the audit and the need for third-party pricing services and valuation specialists. However, the review team concluded those added burdens can be attributed at least in part to the Securities and Exchange Commission and the Public Company Accounting Oversight Board. “We believe that some of the costs relate to regulatory environment factors arising after the issuance of Statement 157, such as the requirements associated with the Sarbanes-Oxley Act of 2002, SEC reviews, and PCAOB inspections,” the report says.

The review team also found a correlation between cost concern and the size of the company and its outside specialist, such as accountants or auditors. “We believe that as the size of the preparer or practitioner declines based on revenue, their concerns about the costs related to Statement 157 increase,” the report says. “Similarly, certain types of entities, including private equity as well as employee benefit plans, not-for-profit organizations, and private companies are concerned about the costs as they relate to their specific type of entity.”

On top of the cost concern, the review team said some investors reported they didn't find the information resulting from FAS 157 implementation to be relevant or meaningful for employee benefit plans, not-for-profit organizations, or private companies. The review team agreed that while FAS 157's requirements are understandable, can be applied as intended, and facilitate reliable reporting, certain requirements in the standard are difficult to apply for entities like employee benefit plans, private companies, and not-for-profit organizations. Resource constraints coupled with a lack of market-based evidence for assets being valued, not to mention inconsistent application, all contributed to difficulties, the review team said.

FASB Chairman Russ Golden said in a statement that the report identified many positive aspects of the standard, especially that it met its objectives and didn't result in unintended consequences. “We are eager to consider the PIR team's findings and anticipate providing our initial response in the coming weeks,” he said.