Early Adoption of SFAS 159: Lessons from Games (almost) Played

Abstract

This paper examines instances of firms that early adopted SFAS 159, The fair value option for financial assets and financial liabilities, and then rescinded or revised their early adoption of the standard because their implementation was not in keeping with the "intent and spirit" of the standard. These reversals imply opportunistic use of the implementation provisions in SFAS 159 and, as such, provide a useful blueprint for understanding the effects of the standard, which became effective for all firms in November 2007. An analysis of the disclosures by the rescinding firms indicates the importance of informal mechanisms in helping firms interpret and implement new accounting standards, which is particularly relevant given the lesser amounts of detailed guidance provided by standard-setters in principles-based compared with rules-based standards.

Keywords: SFAS 159, Fair value, Disclosure

JEL Classification: M4, M40, M41