Investing

AICPA Proposes Framework for Valuation of Certain Financial Instruments

Historically, financial instruments, such as mortgage-backed securities, credit default swaps, complex bonds and other derivatives, have been difficult to value, which has the potential to adversely impact markets and the global economy, the AICPA says.

By PLANSPONSOR staff editors@plansponsor.com | July 07, 2017
Page 1 of 2 View Full Article

The American Institute of Certified Public Accountants (AICPA) is seeking comments about a new framework to guide CPAs and financial professionals on the valuation of financial instruments and their underlying components.

The framework will bring clarity, consistency and transparency to the valuation of these instruments. Historically, financial instruments, such as mortgage-backed securities, credit default swaps, complex bonds and other derivatives, have been difficult to value, which has the potential to adversely impact markets and the global economy, the AICPA says.

The new framework defines the level of documentation necessary for a professional working with securities and financial instruments to effectively demonstrate the valuation performed. The guidance provided by the framework relies upon three major principals: independence, objectivity and consistency. This guidance will inform the basis for a new credential from the American Institute of CPAs, Certified in Valuation of Financial Instruments (CVFI), expected to launch later this year.

The Disclosure Framework for the Valuation of Financial Instruments and the Certified in Valuation of Financial Instruments (CVFI) Credential, provides guidance about how to explain the characteristics of financial instruments and disclose how these securities have been valued in a way that is understandable, consistent and transparent. The framework establishes parameters of documentation requirements, sets definitions of terms that may be unique to the framework, and includes a list of accounting, audit and valuation standards and references to technical literature directly applicable to the guidance in the framework.

NEXT: Application of the framework

SPONSORED MESSAGES