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FASB: Fair Value Decisions

  • By Salome J. Tinker, CPA, AFP
  • Published: 2011-08-16

The U.S. Financial Accounting Standards Board (FASB) discussed financial statement presentation, clarifications of the criteria for equity method investments and presentation of changes in fair value attributable to "own credit" related to classification and measurement of financial instruments at their recent meeting. Here are the decisions that resulted:

Financial Statement Presentation

FASB affirmed its decision in the proposed Accounting Standards Update (ASU) that an entity would be required to separately present financial assets and financial liabilities on the balance sheet by classification and measurement category. Specifically, FASB decided on the following presentation requirements.

Balance Sheet Presentation

Financial Assets Measured at Amortized Cost - A public entity would be required to parenthetically present fair value on the face of the balance sheet. All entities would be required to separately present cumulative credit losses on the face of the balance sheet. 

Financial Liabilities Measured at Fair Value - All entities would be required to parenthetically present amortized cost on the face of the balance sheet for an entity's own debt.

Financial Liabilities Measured at Amortized Cost - A public entity would be required to parenthetically present fair value on the face of the balance sheet for all financial liabilities measured at amortized cost except demand deposit liabilities. A public entity would also be required to disclose in the notes to the financial statements a present value amount for demand deposit liabilities. FASB will discuss the measurement technique for this disclosure at a future meeting. 

Short-Term Receivables and Payables - Short-term (less than one year) receivables and payables would not be subject to the parenthetical fair value presentation requirements. 

Income Statement Presentation—Applicable to All Entities

Financial Assets - An entity would be required to present in net income an aggregate amount for realized and unrealized gains or losses for financial assets measured at fair value with all changes in fair value recognized in net income. An entity would also be required to separately present current-period interest income, current-period credit losses and realized gains and losses in net income for financial assets measured at fair value with changes recognized in other comprehensive income and amortized cost.

Financial Liabilities - An entity would be required to present in net income an aggregate amount for realized and unrealized gains or losses for financial liabilities measured at fair value with all changes in fair value recognized in net income. An entity would also be required to separately present current- period interest expense and realized gains and losses in net income for financial liabilities measured at amortized cost.
 

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