Recoveries of Other-Than-Temporary Impairments (Reversals)
Last Updated: August 10, 2009 (Updated sections are indicated with an asterisk *)
The staff has prepared this summary of Board decisions for information purposes only. Those Board decisions are tentative and do not change current accounting. Official positions of the FASB are determined only after extensive due process and deliberations.
The objective of this project is to consider allowing an entity to recover, through earnings, a previously recognized other-than-temporary impairment loss on certain financial instruments when evidence exists that an impairment loss has reversed. Another objective of this project is to converge with International Financial Reporting Standards ( IFRS) with regard to the accounting for recoveries of other-than-temporary impairments.
Due Process Documents
Decisions Reached at the Last Meeting (December 15, 2008)
See minutes below.
Summary of Decisions Reached to Date
See Decisions Reached at the Last Meeting.
The Board is monitoring the implementation of FSP FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments, and decisions reached on the Financial Instruments: Improvements to Recognition and Measurement project, delaying deliberations on this project until a full review is completed.
Board/Other Public Meeting Dates
The Board meeting minutes 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 become final only after a formal written ballot to issue a final Statement, Interpretation, FSP, or Statement 133 Implementation Issue.
December 15, 2008
Board Meeting—Project added to the Board’s agenda and decision made on scope
Pursuant to FASB Statement No. 115, Accounting for Certain Investments in Debt and Equity Securities, and further clarified in FASB Staff Position FAS 115-1 and FAS 124-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments, when an other-than-temporary impairment has been identified for certain investments classified as either held-to-maturity or available-for-sale, a loss is recognized in earnings for the difference between the cost of the investment and its fair value. The fair value becomes its new cost basis from which future other-than-temporary impairments are determined. Subsequent recoveries in the fair value of the investment are not recognized through earnings.
In subsequent periods after an other-than-temporary impairment loss has been recognized on a debt security, an investor should account for the debt security as if it had been purchased on the measurement date of the impairment. That is, the discount or reduced premium recorded for the debt security, based on the new cost basis, would be amortized over the remaining life of the debt security in a prospective manner based on the amount and timing of future estimated cash flows.
Under IFRS, reversals of impairment losses through earnings are allowed under certain circumstances for debt securities classified as held-to-maturity and available-for-sale. Reversals are not allowed for equity securities.
The inability to recognize recoveries of an other-than-temporary impairment through earnings represents a conservative bias that consequently places significant pressure on the decision to impair a security. Further, the inability to recognize recoveries through earnings is inconsistent with the accounting for similar financial instruments under IFRS.
Bradley J. Homant
Assistant Project Manager