Enclosed is the latest edition of KPMG’s Defining Issues. It describes new FASB Statement 159 that allows companies to measure specified financial instruments and warranty and insurance contracts at fair value on a contract-by-contract basis, with changes in fair value recognized in earnings each reporting period. The election, called the “fair value option,” will enable some companies to reduce the volatility in reported earnings caused by measuring related assets and liabilities differently, and it is simpler than using the complex hedge-accounting requirements in Statement 133 to achieve similar results.