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Journal entry — Classification and measurement of financial instruments — FASB makes decisions on deferred tax assets, scope of specialized industry guidance, and disclosures

Published on: Oct 05, 2012

At its October 3, 2012, meeting, the FASB tentatively decided:

  • To require entities to assess, separately from the assessment of their other deferred tax assets, the need for a valuation allowance on a deferred tax asset arising from unrealized losses recognized in other comprehensive income on a debt instrument classified and measured at fair value though other comprehensive income (FV-OCI).
  • For brokers and dealers in securities, to:
    • Retain specialized guidance on:
      • Initial measurement of fail-to-deliver instruments, financial-restructuring transactions, and proprietary trading securities.
      • Subsequent measurement of (1) securities underlying suspense accounts, (2) shares that a broker-dealer is firmly committed to purchase but that customers have not yet subscribed to, (3) investments in the form of equity or financing provided to another entity in connection with financial-restructuring transactions, and
        (4) proprietary trading securities.
    • Not allow entities to use the practicability exception to measure investments in nonmarketable equity securities at cost less any impairment plus or minus adjustments in fair value when information about a change in price is observable.
    • Not require parenthetical presentation or disclosure of the fair value of financial instruments classified and measured at amortized cost, if a broker or dealer is a nonpublic entity.
  • For investment companies, to:
    • Retain specialized guidance on subsequent measurement of debt and equity securities and on the following:
      • Dividends and interest.
      • Investment securities sold.
      • Capital stock sold.
      • Other accounts receivable.1
    • Not allow entities to use the practicability exception to measure investments in nonmarketable equity securities at cost less any impairment plus or minus adjustments in fair value when information about a change in price is observable.
    • Not require parenthetical presentation or disclosure of the fair value of financial instruments classified and measured at amortized cost, if an investment company is a nonpublic entity.
  • For depository and lending institutions, to supersede2 the specialized guidance on initial and subsequent measurement of debt-equity swaps and subsequent measurement of short sales.
  • For mortgage banks, to supersede specialized guidance on:
    • Initial measurement of affiliated transactions and loans held as long-term investments.
    • Subsequent measurement of loans held for sale and securitizations of mortgage loans held for sale.
  • To require entities to provide certain disclosures:
    • For financial instruments measured at amortized cost and financial assets at FV-OCI, including the sales of those instruments.
    • For (1) nonmarketable equity securities under the practicability exception, (2) nonrecourse financial liabilities, (3) reclassification of financial instruments, and (4) changes in fair value related to an entity’s own credit.
  • To require entities to present equity method investments held for sale in a separate line item on the face of the statement of financial position.

 


1 For example, receivables from related parties, including expense reimbursement receivables from affiliates and variation margins on open futures contracts.

2 When the guidance is superseded, entities will apply the FASB’s tentative model for classification and measurement of financial instruments.

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