FAR Fair Value of Stock vs Finra Rules vs FASB ASC Topic 820

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  • #1676366
    Ne’O
    Participant

    I’ve been in trading and trading operations for 22 years now.
    If you ask me how many FINRA licenses I’ve held, it would look like a Fibonacci sequence.
    Long on experience but a CPA-wannabe, sometimes I am most troubled by questions in the are of which many people would consider me Yoda.

    For FAR I have been doing the 2015 and 2016 AICPA Released Questions.
    In FAR AICPA Released 2016: Question #15 about Crossroads Co. and their asset at its Fair Value on the Market less Commission. The answer is $[x]
    The commission is only $1, which is less than FINRA guidelines as 5% caps.

    For this question, I will accept that value of $[x]
    It is really the commission component that always bothers me.
    I also see questions like: There is only one active market. Price on active Market is $80, but commission is $6. Or You can sell to your cousin for $79 at the Flamingo Diner. What is Fair Value for reporting? According to FAR AICPA Released 2016: it would be the $80.

    The problem I have with that from a trader ops point of view: The commission of $6 is greater than 5% per the FINRA rule: https://finra.complinet.com/en/display/display_main.html?rbid=2403&element_id=11539 . It is also net-net less than your cousin Vinny would pay for it to avoid having to buy it on the open market at $80
    Per my old licenses, whether Market Value or Fair Value- I’d have to report the net realizable value to the customer as $74 and get his written approval acknowledging the value of $74 to him before I can execute the trade.

    So, according to GAAP- is it $80, $79, or $74?
    I always want to say $74 under FINRA, but keep running into questions where the commission rate quoted is in excess of 5%. FINRA views it as Significant Spread, and as I read FASB ASC Topic 820: https://home.kpmg.com/content/dam/kpmg/pdf/2015/12/fair-value-qa-2015.pdf
    … it seems the FV should reflect or include the ‘Significant’ Commission [page 11].

    But AICPA FAR questions usually have answer $[x], ignoring ASC Topic 820 as I read it and many years of having to declare fair value as being the market value less the ‘significant’ commission.

    In a nutshell: Is GAAP fair value really $80 or $74 (ignore Cousin Vinny @ the Flamingo Dinner as not an active market) in this case. There is one active market, and the commission is a fixed $6 > ‘significantly’ greater than the FINRA 5% guideline.

    I know it is an odd question, but it seems that SEC-Finra and FASB-GAAP are at odd here.
    It bugs the tar out of me every time I have to put value $[x] on one of the FAR questions of this nature that I hit. Since 2001, with the rare exception of some penny options trades, I rarely see commissions in excess of 5%- but they pop up in FAR questions all the time.

    Ne’O

    -Yes it's Ne'O.

    AUD:  72, 89

    FAR:  71, 80

    BEC:  83

    REG: 82

    Newbie CPA Candidate

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