The Financial Accounting Standards Board plans to draft proposed updates to fair value accounting standards with new disclosure requirements.

Among the new disclosures will be information about the sensitivity of certain fair value measurements. If a change in one or more of the significant inputs to a Level 3 fair value measurement would significantly change the fair value, the reporting entity would have to state that fact and disclose the effect of those changes.

FASB also wants to require more information about transfers in or out of Levels 1 and 2. A reporting entity would disclose information about significant transfers in and out of Levels 1 and 2 and the reasons for the transfers.

In addition, the new disclosure requirements would mandate gross reporting of changes in Level 3 fair value measurements. Information about purchases, sales, issuances and settlements included in the reconciliation of Level 3 fair value measurements would be presented on a gross basis, rather than a net basis.

FASB also intends to propose two clarifications of existing disclosure requirements. One will concern the level of disaggregation. An entity is currently required to provide fair value measurement disclosures for each major category of assets and liabilities. FASB plans to provide guidance on the meaning of the term “class.” The board believes a class is often a subset of assets or liabilities within a line item in the statement of financial position. An entity would apply judgment in determining the appropriate classes of assets and liabilities.

In addition, FASB plans to clarify the requirements for disclosures about inputs and valuation techniques. An entity is currently required to provide disclosures about the valuation techniques used to measure fair value. FASB will clarify that the disclosures about the inputs used are required for both recurring and non-recurring fair value measurements. The board also will clarify that those disclosures are required for fair value measurements that fall in both Level 2 and Level 3.

FASB decided that the proposal would be effective for annual or interim reporting periods ending after Dec. 15, 2009, except for Level 3 sensitivity disclosures, which would be effective for reporting periods (annual or interim) ending after March 15, 2010.

FASB staff will draft a proposed Accounting Standards Update, with a 45-day comment period.


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