GlobeSt.com: Explain the suggested change please.

Larsen: FASB is proposing a requirement that companies disclose a range of possible valuations for certain assets in cases where an established, liquid market does not exist.

GlobeSt.com: And where is it now in the process?

Larsen: It's been in the comment stage for about a month now. That'll end by October 12.

GlobeSt.com: Now, as I understand it, this is not as a significant a proposed change as FASB's ongoing deliberations on financial instruments and how they should be treated.

Larsen: Yes, that's true. When that guidance comes out – which won't be until 2010 or 2011 – it could be a major change.

GlobeSt.com: But this proposed change – the one we are discussing on possible valuations in an illiquid market -- will also have an impact, assuming it is adopted?

Larsen: The proposed change is in the disclosure – but some are questioning whether the changes make sense. Not all of the changes are controversial, though, I have to say. For instance, one would require if an input moves from Level 1 to Level 2, it must be explained why. [Editor's note: briefly, in its 2006 FAS 157 standard, FASB established a three level hierarchy for assets. Level 1 inputs are quoted prices in active markets for identical assets or liabilities. Level 2 are "observable" assets or liabilities and Level 3 are assets for which the market is essentially illiquid]. What is creating the most questions is the provision that says if you value something using Level 3 inputs and there are reasonable possible alternatives and those alternatives would result in a significant difference in the value, then you have to disclose those alternatives and the impact on fair value assessment.

GlobeSt.com: Where is most real estate paper right now?

Larsen: Prior to everything freezing last year much of it was at a Level 2 – meaning their valuations were driven by cash flow models and various assumptions that were not as observable in the market. Today most of it is at a Level 3.

GlobeSt.com: How would the rule be applied today if it were in effect?

Larsen: Let's say you have an office building. To value it, you look at the term of the lease, its comps and come up with a value. Let's say I come up with a value of '100' because of all the different characteristics. But it also could conceivably be '75' or '120', depending on the economy – say retail sales are better this holiday season and there is a significant retail component to the office building. So what happens is that you have the potential to raise a Pandora's box of second-guessing. Shareholders can ask why the '75' or '120' wasn't included in the financial statements for instance.

GlobeSt.com: Why is FASB suggesting this rule change?

Larsen: It believes investors want it – and the additional information could would helpful. But critics say it may be too much information and confuse matters.