SUMMARY OF BOARD DECISIONS
Summary of Board decisions are provided for the information and convenience of constituents who want to follow the Board’s deliberations. All of the conclusions reported are tentative and may be changed at future Board meetings. Decisions are included in an Exposure Draft for formal comment only after a formal written ballot. Decisions in an Exposure Draft may be (and often are) changed in redeliberations based on information provided to the Board in comment letters, at public roundtable discussions, and through other communication channels. Decisions become final only after a formal written ballot to issue a final standard.
August 5, 2009 Board Meeting
FAS 157—improving disclosures about fair value measurements. After discussing the feedback received from field study participants on the proposed disclosure requirements, the Board directed the staff to draft a proposed Accounting Standards Update to improve disclosures about fair value measurements. The Exposure Draft would both clarify certain existing required disclosures about fair value measurements and propose several new disclosures, as described below.
- The Board will propose three new disclosure requirements:
- Information about the sensitivity of certain fair value measurements: If a change in one or more of the significant inputs to a Level 3 fair value measurement would significantly change the fair value, the reporting entity would state that fact and disclose the effect of those changes.
- Information about transfers in and/or out of Levels 1 and 2: A reporting entity would disclose information about significant transfers in and out of Levels 1 and 2 and the reasons for the transfers.
- Gross reporting of changes in Level 3 fair value measurements: Information about purchases, sales, issuances, and settlements, included in the reconciliation of Level 3 fair value measurements, would be presented on a gross basis rather than a net basis.
- The Board will propose two clarifications of existing disclosure requirements:
- Level of disaggregation: An entity is currently required to provide fair value measurement disclosures for each major category (class) of assets and liabilities, and the Board plans to provide guidance on the meaning of the term class. The Board believes a class is often a subset of assets or liabilities within a line item in the statement of financial position. An entity would apply judgment in determining the appropriate classes of assets and liabilities.
- Disclosures about inputs and valuation techniques: An entity is currently required to provide disclosures about the valuation techniques used to measure fair value. The Board will clarify that the disclosures about the inputs used are required for both recurring and nonrecurring fair value measurements. The Board also will clarify that those disclosures are required for fair value measurements that fall in both Level 2 and Level 3.
The Board decided that the proposal would be effective for reporting periods (annual or interim) ending after December 15, 2009, except for Level 3 sensitivity disclosures, which would be effective for reporting periods (annual or interim) ending after March 15, 2010.
The Board directed the staff to proceed to a draft of a proposed Accounting Standards Update for vote by written ballot, with a 45-day comment period.
FAS 157—applying fair value to interests in alternative investments. The Board deliberated issues raised by respondents to proposed FSP FAS 157-g, Estimating the Fair Value of Investments in Investment Companies That Have Calculated Net Asset Value per Share in Accordance with the AICPA Audit and Accounting Guide, Investment Companies. The following decisions were reached:
- The Board affirmed its earlier decision that an investment with a readily determinable fair value should be excluded from the scope of the final Accounting Standards Update. Additionally, the Board decided to clarify in the final Accounting Standards Update that the guidance would apply to investments in entities that (a) have the attributes specified in paragraph 946-10-15-2 of the FASB Accounting Standards Codification™, (b) report net asset value (or its equivalent, such as partner’s capital) to their investors, and (c) calculate net asset value (or its equivalent) consistent with the measurement principles of the Financial Services—Investment Companies Topic (Topic 946), that is, substantially all of the investment assets of the entity are reported at fair value.
- The Board affirmed its earlier decision that an entity would be permitted, rather than required, as a practical expedient, to estimate the fair value of an investment within the scope of the Accounting Standards Update using the net asset value of the investment (or its equivalent) if the net asset value is calculated consistent with the requirements of Topic 946 as of the measurement date. Additionally, the Board decided that an entity would be permitted to apply the practical expedient to investments acquired when there is a difference between the transaction price and the net asset value and recognize a gain or loss in earnings. An entity would not be required to disclose separately such gains or losses.
- The Board decided that an entity would be permitted to use net asset value as a practical expedient on an investment-by-investment basis. The entity would be required to apply the practical expedient consistently to its entire position in a particular investment.
- The Board decided that an entity would not be permitted to use net asset value, as a practical expedient, to estimate fair value of an investment in the scope of the Accounting Standards Update if certain criteria are met that indicate that it is probable that the entity will sell the investment in a secondary market. The criteria to determine whether the investment is likely to be sold in the secondary market would be similar to those in the Property, Plant, and Equipment Topic (Topic 360) for determining whether a long-lived asset to be sold should be classified as held for sale. The Board also decided that an entity would be required to provide additional disclosures about situations in which the entity determines that it is probable that it will sell an investment (or investments) in the secondary market.
- The Board decided to clarify that an entity may apply the practical expedient if the net asset value reported by the investee is not as of the reporting entity’s measurement date. However, the entity would be required to adjust the latest available net asset value for significant events that occurred since the date the net asset value was calculated by the investee so that the adjusted net asset value is effectively calculated consistent with the requirements of Topic 946 as of the measurement date.
- The Board decided to clarify that the disclosures are to be presented by major category, rather than by individual investment, and that those categories are intended to be consistent with existing guidance for major security types for debt and equity securities and major category of plan assets. The entity would be required to provide a general description of the terms and conditions for redemption of the investments in each major category. Additionally, for those otherwise redeemable investments that are restricted from redemption as of the reporting entity’s measurement date (for example, due to a lockup or the imposition of a gate), the entity would be required to disclose its best estimate of when the restriction against redemption might lapse. If that estimate cannot be made, the entity would disclose that fact as well as how long the restriction has been in place.
- The Board decided to clarify that classification within the fair value hierarchy of an investment within the scope of the guidance requires judgement based on the existing principles of the Fair Value Measurements and Disclosures Topic (Topic 820) and that all attributes of the investment should be considered.
- The Board decided that the disclosure provisions of the Accounting Standards Update would not be applicable to employers’ disclosures about postretirement benefit plan assets required by the Compensation—Retirement Benefits Topic (Topic 715).
- The final Accounting Standards Update will be effective for periods ending after December 15, 2009, with early adoption permitted. If an entity elects to early adopt the Accounting Standards Update, the entity would not be required to early adopt the disclosure provisions of the Accounting Standards Update.
Oil and gas disclosures. The Board decided to amend FASB Accounting Standards CodificationTM Topic 932, Extractive Activities—Oil and Gas, to align the existing GAAP disclosure and reserves calculation requirements with the Securities and Exchange Commission’s final rule, Modernization of the Oil and Gas Reporting Requirements (the Final Rule). A description of those amendments follows.
- The Board made the following decisions about the staff’s proposed conforming changes to Topic 932:
- The scope will be expanded to include nontraditional sources of oil- and gas-producing activities.
- Definitions in the Master Glossary linked to Topic 932 will be amended or added to align with the Final Rule.
- The aggregate amount of future cash inflows related to the standardized measure of discounted future cash flows and the aggregate change in the standardized measure of discounted cash flows will be calculated and disclosed using 12-month average prices instead of year-end prices.
- Geographic area will be defined as countries containing significant reserves, and any country containing 15 percent or more of proved reserves will be considered significant.
- The Board made the following decisions about equity method investments related to Topic 932:
- Equity method investments must be considered in determining whether an entity has significant oil- and gas-producing activities.
- An entity must present separately disclosures about reserve quantities and amounts (for example, the results of operations) for consolidated entities and an entity’s proportionate interest in equity method investees. An entity may also present a combined total.
- An entity must disclose information about an entity’s proportionate interest in an equity method investee in the same level of detail as is required for consolidated investments.
- The Board made the following decisions about effective date and transition guidance:
- The Accounting Standards Update will be effective for annual reporting periods ending on or after December 31, 2009. Early application is not permitted, and the Accounting Standards Update must be applied prospectively as a change in estimate.
- An entity is not required to present separately the effect of the adoption of a final Accounting Standards Update in a single line-item within the “roll-forward” of the entity’s (1) proved reserve quantities or (2) the standardized measure of discounted future cash flows. If significant and practical, an entity must disclose separately an estimate of the effect of the adoption of the Accounting Standards Update for each disclosure. If the effect is not significant or not practical to estimate, the entity must state that fact and describe why it is not practical to estimate the effect of adopting the Accounting Standards Update. If a particular aspect of the adoption of the Accounting Standards Update is significant and practical to estimate, but another aspect is not, the entity must disclose the effect of the aspect that is significant and practical to estimate and indicate that other aspects were not.
- An entity must disclose separately the effect on the disclosures of quantities and amounts due to the inclusion of nontraditional sources of oil and gas within the scope of Topic 932.
- The Board directed the staff to proceed to a draft of a proposed Accounting Standards Update for vote by written ballot, with a 30-day comment period.