IASB conclusions on FASB FSPs

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25 Apr 2009

The IASB has reviewed two recent FASB Staff Positions (FSPs) on fair value and impairment of financial assets and has reached the following conclusions:

  • FSP FAS 157-4, which provides guidance on determining fair value when market activity has decreased. The IASB has agreed that the guidance in FSP FAS 157-4 is broadly consistent with the principles of fair value in IFRSs and the recommendations of the IASB's Expert Advisory Panel. The IASB plans to include relevant guidance from the FSP in the IASB's exposure draft on Fair Value Measurement, which will be published in May.
  • FSP FAS 115-2 and FAS 124-2, which addresses other-than-temporary impairments for debt securities. The IASB has decided not to propose adopting the conclusions in this FSP. This FSP applies to debt securities and shifts the focus for assessing impairment from an entity's intent to hold until recovery to its intent to sell.

    FSP FAS 115-2 and FAS 124-2 requires:

    • An entity must assess whether (a) it intends to sell the debt security or (b) it is more likely than not that the entity will be required to sell the debt security before its anticipated recovery (for example, to meet working capital needs).
    • If it does intend to sell (or it cannot assert that it is more likely than not that it will not have to sell the securities before recovery), the entity will write the asset down to fair value through earnings.
    • If an entity does not intend to sell a debt security (available-for-sale or held-to-maturity), but it is probable that the entity will not collect all amounts due according to the debt's contractual terms, the entity will bifurcate the impairment amount:
      • The impairment due to credit, measured as the difference between amortized cost and the present value of expected cash flows discounted at the security's effective rate, would be recognised in earnings.
      • The remaining amount of the impairment (noncredit portion) would be recognised in other comprehensive income (separately from other unrealised gains and losses on available-for-sale securities). The noncredit portion for held-to-maturity securities recorded in other comprehensive income should be amortised prospectively (with the offsetting amount increasing the value of the asset) over the remaining life of the security.
    In deciding not to adopt FSP FAS 115-2 and FAS 124-2, the IASB said that, instead, it will take up the broad issue of impairment as part of its Comprehensive Review of IAS 39. The IASB believes that an immediate response to the recent FSP on impairment is unnecessary. The IASB also announced a timetable for the IAS 39 review, which calls for issuance of an exposure draft of a proposed replacement for IAS 39 by October 2009.
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