Yesterday the Financial Accounting Standards Board (FASB)  issued two proposed staff positions (FSPs) aimed at providing added application guidance on fair value measurements and impairments of securities.

Beyond these near-term proposed improvements, the FASB also has a joint project in conjunction with the International Accounting Standards Board that is aimed at more broadly revamping and converging their respective standards on accounting for financial instruments.

The board is also encouraging constituents to review the proposed FSPs and offer comment on whether they think that the proposed FSPs would actually improve financial reporting.

Written comments on both FSPs are due by  April 1. The two proposals as well as instructions for submitting comments can be found at www.fasb.org. The FASB has scheduled a board meeting on April 2 to evaluate all comment letters and other input received on the FSPs.

Specifics on the FSPs

In terms of the FSPs, the FASB's proposed FSP FAS 157-e, Determining Whether a Market Is Not Active and a Transaction Is Not Distressed, offers guidelines for making fair value measurements more consistent with the principles presented in FASB Statement No. 157, otherwise known as Fair Value Measurements.

Meanwhile, proposed FSP FAS 115-a, FAS 124-a, and EITF 99-20-b, Recognition and Presentation of Other-Than-Temporary Impairments, also offers added guidance to create increased clarity and consistency in terms of accounting for and presenting impairment losses on securities.

According to the FASB, Statement 157 provides a framework for measuring fair value as well as a definition of fair value that considers an orderly transaction between market participants, instead of a forced or distressed sale.

In this negative economic environment, many constituents have asked for added authoritative guidance to help them determine whether a market is active or inactive, and if a deal is distressed. Proposed FSP FAS 157-e would provide this application guidance.

Proposed FSP FAS 115-a, FAS 124-a, and EITF 99-20-b on other-than-temporary impairments (OTTI) is aimed at offering more clarity to buy-siders regarding the credit and non-credit component of an OTTI event and to more effectively communicate when an OTTI event has transpired.

As proposed, the FSP would apply to both debt and equity securities, according to the FASB. The proposed FSP requires a separate display on the income statement of losses that are related to credit deterioration and losses related to other market factors. The market-related losses would be recorded in other comprehensive income if it is not probable that the buyer will have to sell the security before recovery.

FASB said that if approved, both these FSPs would be effective for interim and annual periods ending after March 15.

 

 

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