Classification and Measurement of Financial Instruments — FASB Makes Presentation Decisions

Published on: 02 Aug 2012

At its meeting yesterday, the FASB tentatively decided that:

  • Foreign currency gains and losses on foreign currency denominated debt securities classified at FV-OCI1 should be recognized in earnings.2 (At a future meeting, the Board will discuss how an entity would measure the change in fair value attributable to changes in foreign-currency exchange rates.)
  • Debt instruments classified at amortized cost that are subsequently identified for sale should be (1) disaggregated from debt instruments that continue to be held for the collection of contractual cash flows and (2) presented as a separate line item on the face of the statement of financial position. Further, an entity would disclose in the notes to the financial statements why it decided to sell debt securities classified at amortized cost. In addition, for securities that were subsequently sold during the reporting period, entities would be required to disclose the amortized cost, fair value, and the gain or loss recognized on their sale during the reporting period.

Editor’s Note: This decision applies to a sale of such instruments that is not part of a change in the business model requiring reclassification. At its May 2012 meeting, the FASB tentatively decided that changes in the business model that require reclassification must be (1) determined by an entity’s senior management as a result of external or internal changes, (2) significant to an entity’s operations, and (3) demonstrable to external parties.

The Board also discussed the evaluation of a valuation allowance on a deferred tax asset related to a debt instrument for which qualifying changes in fair value are recognized in FV-OCI. Respondents to the FASB’s 2010 proposed ASU largely disagreed with the proposal that an entity evaluate the need for a valuation allowance on a deferred tax asset related to a debt instrument classified and measured at FV-OCI together with, rather than separately from, its other deferred tax assets. The Board directed the staff to perform additional research for discussion at a future meeting.


[1] Fair value with changes recognized in other comprehensive income.

[2] Under existing U.S. GAAP, foreign currency gains and losses for foreign-denominated available-for-sale debt securities are typically presented in OCI.

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