The Financial Accounting Standards Board (FASB) issued three final Staff Positions (FSPs) intended to provide additional application guidance and enhance disclosures regarding fair value measurements and impairments of securities.
- FSP FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly, provides guidelines for making fair value measurements more consistent with the principles presented in FASB Statement No. 157, Fair Value Measurements.
- FSP FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments, enhances consistency in financial reporting by increasing the frequency of fair value disclosures.
- FSP FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments, provides additional guidance designed to create greater clarity and consistency in accounting for and presenting impairment losses on securities.
“The issuance of these final FSPs follows a period of intensive and
extensive efforts by the FASB to gather input on our proposed guidance,”
said FASB Chairman Robert H. Herz. “We received over 600 written comment
letters, many emails, and held many face-to-face meetings and other
discussions with a broad range of affected constituents.”
Added Herz, “Our careful consideration of the input resulted in some changes
in the final documents from the guidance first proposed. The changes include
a number of new disclosures relating to the determinations of fair value and
to estimated credit losses and credit exposures. Virtually all of the
investors providing input expressed the need for greater transparency by
banks. Taken together, these three new documents require significantly
expanded and enhanced disclosures.”
FSP FAS 157-4 relates to determining fair values when there is no
active market or where the price inputs being used represent distressed
sales. It reaffirms what Statement 157 states is the objective of fair value
measurement—to reflect how much an asset would be sold for in an orderly
transaction (as opposed to a distressed or forced transaction) at the date
of the financial statements under current market conditions. Specifically,
it reaffirms the need to use judgment to ascertain if a formerly active
market has become inactive and in determining fair values when markets have
become inactive.
FSP FAS 107-1 and APB 28-1 relates to fair value disclosures
for any financial instruments that are not currently reflected on the
balance sheet of companies at fair value. Prior to issuing this FSP, fair
values for these assets and liabilities were only disclosed once a year. The
FSP now requires these disclosures on a quarterly basis, providing
qualitative and quantitative information about fair value estimates for all
those financial instruments not measured on the balance sheet at fair value.
FSP FAS 115-2 and FAS 124-2 on other-than-temporary
impairments is intended to bring greater consistency to the timing of
impairment recognition, and provide greater clarity to investors about the
credit and noncredit components of impaired debt securities that are not
expected to be sold. The measure of impairment in comprehensive income
remains fair value. The FSP also requires increased and more timely
disclosures sought by investors regarding expected cash flows, credit
losses, and an aging of securities with unrealized losses.
The FSPs are effective for interim and annual periods ending after June 15,
2009, but entities may early adopt the FSPs for the interim and annual
periods ending after March 15, 2009. Beyond these near-term actions, the
FASB has a joint project with the International Accounting Standards Board
aimed at more broadly revamping and converging their respective standards on
accounting for financial instruments.
Related downloads:
FSP FAS 107-1 and APB 28-1
FSP FAS 115-2 and FAS 124-2
FSP FAS
157-4