The Securities and Exchange Commission has released a staff accounting bulletin that revises and rescinds some of the rules for written loan commitments to make them more consistent with recent accounting rules.

Staff Accounting Bulletin No. 109, "Written Loan Commitments Recorded at Fair Value Through Earnings," corrects portions of SAB No. 105, "Application of Accounting Principles to Loan Commitments."

SAB 109 revises the SEC staff's views on incorporating expected net future cash flows related to loan servicing activities in the fair value measurement of a written loan commitment. The same SAB, however, retains the staff's views on incorporating expected net future cash flows related to internally developed intangible assets in the fair value measurement of a written loan commitment.

SAB 105 stated that in measuring the fair value of a derivative loan commitment, the SEC staff believed it would be inappropriate to incorporate the expected net future cash flows related to the associated servicing of the loan.

In contrast, SAB 109 follows the guidance of Statement of Financial Accounting Standards No. 156, "Accounting for Servicing of Financial Assets," and SFAS 159, "The Fair Value Option for Financial Assets and Financial Liabilities." Under those rules, the expected net future cash flows related to the associated servicing of the loan should be included in the measurement of all written loan commitments that are accounted for at fair value through earnings.

SAB 105 also indicated that the staff believed that internally developed intangible assets (such as customer relationship intangible assets) should not be recorded as part of the fair value of a derivative loan commitment. SAB 109 retains that staff view and broadens its application to all written loan commitments that are accounted for at fair value through earnings.

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