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FASB and IASB Make Decisions About Fair Value Disclosures, Including Sensitivity Analysis

Published on: 24 Mar 2010

At joint meetings Monday and today, the FASB and the IASB made a number of tentative decisions about fair value disclosures.

Sensitivity Disclosures

A majority of both the FASB (4 members) and the IASB (10 members) voted to require sensitivity analysis disclosure (i.e., sensitivity of fair value measurements to significant unobservable inputs) for all assets and liabilities that are (1) measured at fair value on a recurring basis and (2) classified as Level 3 fair value measurements in the fair value hierarchy. The Boards may decide in the future to exempt certain assets or liabilities from these sensitivity analysis disclosures.

Other Decisions

The Boards decided to:

  • For fair value disclosures provided by class, define “class” according to the following principles:
    • An entity’s determination of the appropriate classes of assets and liabilities should be based on the nature, characteristics, and risks of the assets and liabilities and their classification in the fair value hierarchy.
    • A class of assets and liabilities often will require greater disaggregation than the entity’s line items in the statement of financial position.
    • An entity should apply judgment in determining the appropriate classes of assets and liabilities.
  • Not require entities to disclose information about change in the nonperformance risk of a nonfinancial liability.
  • Require an entity to disclose its policy for determining when transfers between levels of the fair value hierarchy are recognized.
  • Require disclosures about fair value measurements only after initial recognition.
  • Require the same disclosures for (1) assets and liabilities that are required to be remeasured as of each reporting period and (2) those that are not required to be remeasured as of each reporting period, except for Level 3 rollforward disclosures, sensitivity disclosures, and information about transfers between Levels 1 and 2, which would only be required for assets and liabilities required to be remeasured as of each reporting period.
  • For items that are not measured at fair value in the statement of financial position, require entities to disclose fair value information by level in the fair value hierarchy.
  • Not to include guidance on assessing the significance of an input or significant changes in fair value.

The FASB expects to issue an exposure draft of a proposed Accounting Standards Update addressing fair value measurement, including disclosures, in the second quarter of 2010.

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