Two FASB proposals would ease mark-to-market
17 Mar 2009
At its meeting yesterday, the US Financial Accounting Standards Board agreed to propose two modifications to the US mark-to-market requirements for financial instruments.
- Determining when a market for an asset or a liability is not active and determining when a transaction is not distressed. The Board decided to provide additional guidance to help an entity determine whether a market for an asset is not active and when a price for a transaction is not distressed. The Board Meeting Handout (PDF 108k) describes the proposed model the Board agreed to. The model would require 'significant judgement'.
- Other-than-temporary impairments. The Board discussed proposed changes to the guidance for other-than-temporary impairments. Currently, an entity is required to assess whether it has the intent and ability to hold a debt instrument to recovery in determining whether an impairment is other than temporary. The proposed FSP would change that guidance as follows:
- If the entity intends to sell the instrument or it is more likely than not that it will be required to sell the instrument before recovering its cost basis, the entire impairment loss would be recognised in profit or loss as an other-than-temporary impairment.
- If the entity does not intend to sell the security and it is not likely that the entity will be required to sell the instrument before recovering its cost basis, only the portion of the impairment loss representing credit losses would be recognised in profit or loss. The balance of the impairment loss would be recognised as a charge to other comprehensive income. For most debt instruments, an entity would determine the impairment charge representing credit losses by using its best estimate of the impairment amount arising from an increase in the credit risk associated with the specific instrument. The impairment recognised in other comprehensive income would be amortised over the remaining life of a debt instrument prospectively. That amortisation would be recognised in other comprehensive income with an offset to the asset and would not affect profit or loss.
