Coming Soon: FASB’s Fair-Value Statement

FASB makes final decisions about how firms should disclose fair-value elections.

The Financial Accounting Standards Board is moving closer toward issuing a final statement on its proposed fair-value option for financial assets and liabilities.

The board expects to issue a statement in mid-to-late February, according to Robert Wilkins, a FASB project manager on the fair-value option project. As part of the project, the board will decide whether to give issuers a one-time choice to report certain financial instruments at fair value with the changes included in earnings.

In addition, the board will require issuers to offer information that helps financial-statement users understand the effect on earnings. FASB chair Robert Herz noted during the board’s public meeting on January 3 that there already are different standards that cover the disclosure and measurement of fair value, such as FASB Statements 107 and 157. Some members worried that combining new disclosures with the requirements in Statement 107 would result in problems and possibly multiple disclosure tables.

During the meeting, the board ultimately supported a disclosure approach suggested by board member Leslie Seidman, who suggested extending existing requirements without revolutionizing fair-value disclosure. Seidman proposed that instead of creating a supplemental table, issuers could use the fair-value hierarchy table that is required under Statement 157 and include additional information to help investors understand when fair value was elected.

One instance that would call for such information would be if there were language differences between the fair-value disclosures that relate to balance-sheet line items and major categories, Holly Barker, a FASB project manager, told CFO.com. An issuer will be able to choose how to explain its fair-value election; the board will not require disclosure in a table format.

FASB issued its exposure draft on the fair-value option for financial assets and liabilities on January 25, 2006. Currently the reporting of assets and liabilities using fair value and other measurement attributes leads to volatility in reported earnings. The project aims to lessen that volatility by letting issuers achieve an offset accounting effect for the changes in fair values of assets and liabilities. Moreover, the expected statement on fair value would further converge with international standards.

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