To help alleviate the issues of fair market value, the FASB issued
Staff Position No. 157-3 which determinates “the Fair Value of a
Financial Asset When the Market for That Asset Is Not
Active.” (McCollum, 2008). SFAS 157 uses 3 valuation techniques to
help determine accurate fair market values which are:
Market Approach - "The market approach uses prices and other
relevant information generated by market transactions involving
identical or comparable assets or liabilities (including a business). For
example, valuation techniques consistent with the market approach
often use market multiples derived from a set of comparables."
(Zabel, 2009).
Income Approach - "The income approach uses valuation techniques
to convert future amounts (for example, cash flows or earnings) to a
single present amount (discounted). The measurement is based on
the value indicated by current market expectations about those
future amounts." (Zabel, 2009).
Cost Approach - "The cost approach is based on the amount that
currently would be required to replace the service capacity of an
asset (often referred to as current replacement cost)." (Zabel, 2009).
Zabel, R.R. (2009). SFAS 157: What Is Its Purpose? Robins Kaplan
LLP. https://www. robinskaplan.com/resources/articles/sfas-157-
what-is-its-purpose.
