The Financial Accounting Standards Board has beefed up the disclosure requirements for some types of fair value measurements.

FASB discussed the 111 comment letters it had received on a proposed Accounting Standards Update, “Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements,” at its meeting Wednesday and directed staff members to draft a final Accounting Standards Update for a vote by written ballot.

Most of the comments focused on the proposed Level 3 sensitivity disclosures and their effective dates. Many of the responses, except those from financial statement users, generally did not support the proposed sensitivity disclosures and the effective dates. Some complained about the costs of modifying their information systems and pointed out differences from International Financial Reporting Standard 7, “Financial Instruments: Disclosures.”

For example, for the sensitivity disclosures under IFRS 7, entities are not required to consider the correlation between multiple significant inputs. At their Oct. 28, joint meeting, FASB and the International Accounting Standards Board decided that the staffs of both boards should develop recommendations to eliminate all differences in the boards’ standards for fair value measurement and disclosure, but staff members on the two boards have not yet performed a formal analysis to identify the fair value disclosure differences.

Hence, FASB decided to defer consideration of the Level 3 sensitivity disclosures but proceed with all of the remaining requirements substantially as described in the proposed update. The FASB plans to reconsider the Level 3 sensitivity disclosure requirements in the joint fair value measurement project.

The final ASU will amend Subtopic 820-10 to provide new disclosure requirements for transfers in and/or out of Levels 1 and 2. A reporting entity should disclose the amounts of significant transfers in and/or out of Level 1 and Level 2 fair value measurements and the reasons for the transfers. In the reconciliation for fair value measurements using significant unobservable inputs (Level 3), a reporting entity should present information about purchases, sales, issuances, and settlements on a gross basis rather than as one net number.

FASB also decided to clarify some existing disclosure requirements. Those include the level of disaggregation. A reporting entity should provide fair value measurement disclosures for each class of assets and liabilities. A class is often a subset of assets or liabilities within a line item in the statement of financial position. A reporting entity should apply judgment in determining the appropriate classes of assets and liabilities.

In terms of disclosures about inputs and valuation techniques, a reporting entity should provide disclosures about the input and valuation techniques used to measure fair value for both recurring and nonrecurring fair value measurements. Those disclosures are required for fair value measurements that fall in either Level 2 or Level 3.

The final amendments to the Accounting Standards Codification will be effective for annual or interim reporting periods beginning after Dec. 15, 2009, except for the requirement to provide the Level 3 activity for purchases, sales, issuances and settlements on a gross basis. That requirement will be effective starting in annual periods beginning after Dec. 15, 2010.

Early adoption is permitted. The amendments do not require disclosures for earlier periods presented for comparative purposes at initial adoption. FASB expects to issue a final update by the end of 2009.


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