• How to determine when markets become inactive

• How to determine if a transaction or group of transactions is forced or distressed

• How and when should illiquidity be considered in the valuation of an asset or liability

• How should the impact of a change in credit risk on the value of an asset or liability be

estimated

• When should observable market information be supplemented with and / or reliance placed

on unobservable information in the form of management estimates

• How to confirm that assumptions utilized are those that would be used by market participants

and not just by a specific entity.

Emphasis was also placed on the potential to further utilize the FASB Valuation Resource Group (VRG), including expansion of the VRG's role to function more like the Emerging Issues Task Force.

The second recommendation revolves around impairment of financial instruments, and encompassed several aspects of impairment analysis. The first aspect emphasized the necessity for improved consistency for impairment assessments. The SEC noted that multiple models are available for assessing impairment depending on the characteristics of the financial instruments which results in frequent inconsistencies. The SEC acknowledged that the FASB should consider multiple alternative models to derive a single impairment model. However, the SEC suggested a model in which only impairments related to credit losses (calculated on an incurred loss basis consistent with impairments on loans) would be recognized through income, while any remaining decline in fair value would be recognized through Other Comprehensive Income ("OCI"). Furthermore, the SEC recommended that the FASB revisit impairment guidelines with a new consideration for permitting the recognition of subsequent increases in value in the event of a recovery. The SEC noted that the FASB has already initiated a review of impairment rules to permit subsequent recoveries of value which would make U.S. GAAP more consistent with IFRS. Finally, the SEC recommended enhanced presentation of  OCI in order to provide relevant information regarding a company's future cash flows.

The third recommendation called for an improved policy regarding the use of judgement in the determination of fair value. The SEC noted that approximately 85% of all fair value measurements are either Level 2 or 3 judgements, meaning that they require significant judgement and are not based on quoted market prices. The SEC also noted that enhanced policy regarding judgement based estimates has become more critical overall with the growing trend of objective based standards.

The fourth recommendation called for the FASB to maintain the Statement of Financial Accounting Concept 1 principal that financial statements provide information useful for investors. While financial statements may be used by many parties, the primThe ary purpose of financial statements is to provide relevant and timely information for investors. Therefore, concerns about the pro-cyclicality should not be consider when developing standards if those standards will result in information that would be useful to investors.

The fifth recommendation called for the FASB to remain maintain their independence while also allowing open due-process for addressing challenges in the implementation of new accounting standards. The SEC recommended that the FASB create a Financial Reporting Forum ("FRF"). The newly created FRF would consist of auditors, preparers, and users of financial statements to discuss issues and challenges in the financial reporting system. In addition, the SEC recommended that the FASB conduct post-adoption reviews to address unintended consequences or other issues arising from the implementation of new standards. Finally, the SEC recommended that the FASB create a formal policy for the development of standards "that necessitate near-immediate response".

The final recommendation called for the FASB to address the need to simplify the accounting for investments in financial instruments. The SEC noted that multiple models exist with varying levels of complexities due to the various levels of complexity of financial instruments, although it was suggested that consistency could be enhanced by requiring all financial instruments to be carried at fair value. Suggestions were made to isolate the presentation of changes in fair value from other components of income. It was noted that the current presentation of unrealized holding gains and losses and realized gains and losses can be misleading to financial statement users, and further consideration to the presentation of these items.

Overall, the SEC focused heavily on the FASB's need to provide investors with relevant and timely information in financial statements while maintaining an emphasis on improving investor confidence.  Although several specific suggestions were made by the SEC, they left considerable room for the FASB to maintain their independence with regards to the recommendations.