FASB Delays Effective Date of Fair Value Disclosure

Norwalk, Conn.-- Companies will not have to follow planned guidance to improve disclosures about fair value measurements until periods starting after Dec. 15, a change in effective date chosen by the Financial Accounting Standards Board that represents a postponement of the crisis-driven standards.

In August, the Financial Accounting Standards Board had proposed that
the guidance would generally be effective for annual and interim periods
ending after Dec. 15 (5 APPR 717, 8/7/09). That would cover 2009
year-end reporting.

FASB expects to issue its final guidance on fair value disclosures by Dec. 31.

FASB opted for the deferral of the forthcoming rules, Accounting Standards
Update, Fair Value Measurements and Disclosures, Accounting Standards
Codification 820 (Fair Value Measurement and Disclosures),  at its Nov. 11 meeting.  FASB proposed the ASU Aug. 28.

At the Nov. 11 meeting, the board also decided to defer a proposed requirement for enterprises to disclose sensitivity analysis for what are known as “Level
3” fair value amounts.

Such amounts reflect use of FASB's main rules on fair value measurement, ASC 820 (formerly FAS 157), in situations in which only unobservable data to indicate marketplace participants' views of fair value were available.

In lieu of calling for such sensitivity disclosures in the short-term project, FASB plans to take up the subject in its joint project on fair value being conducted with the International Accounting Standards Board.

Sensitivity disclosures generally are intended to yield information on how values of assets, for example, would be affected by changes in assumptions about economic conditions.

Examples of those assumptions might focus on a rise in unemployment or changes in interest rates. At an educational meeting July 29, FASB Chairman Robert Herz referred to the changes in assumptions as macroeconomic ``shocks."

IASB's existing rules covering fair value, International Financial Reporting Standard 7, call for disclosures about what one FASB staff member described as ``reasonably
possible alternative inputs"--a notion akin to sensitivity.
However, the London-based board's disclosure policies appear to accent
descriptive, rather than quantitative, data.

For its part, FASB's contemplated sensitivity disclosures appeared headed toward the added provision of quantitative information—such
as possibly calling for information on how fair values of residential
mortgage-backed securities would respond to a 10 percent national
unemployment rate, and what the values might be if a regional or national
jobless rate went higher by 1 percentage point, 2 percentage points,
or 3 percentage points.

In considering differences between the two boards' directions on the sensitivity disclosures, FASB members also voiced concern about ``leap-frogging"
in their rulemaking, or having one panel go ahead of the other, only
to call on the other board to catch up and align, and to repeat that.

At their joint meeting in October, the two boards vowed to stay aligned as much as possible on timetables and substance in the joint project. That effort is not expected to yield draft rules until the middle
of 2010. 

By Steve Burkholder