Fair Value Measure Rules to be Issued in April by FASB, IASB

Apr 11, 2011   

This month the Financial Accounting Standards Board (FASB) and The International Accounting Standards Board (IASB) plan to issue joint final standards on how companies should gauge fair value amounts. FASB regards these rules as “targeted improvements” to the current guidance that features standard statements of generally accepted account principles (GAAP) or FAS 157 as auditors and rulemakers call them.

The changes considered by FASB and the IASB do not greatly depart from common practice in the US as stated during public comment and the later changes to the June 2010 proposed accounting standards update, Fair Value Measurements and Disclosures (Topic 820): Amendments for Common Fair Value Measurements and Disclosure Requirements in US GAAP and IFRS. Even though the IASB board does not consider the rules a fundamental change to many of the requirements for measuring fair value or disclosing information about fair value measurements, it considers the fair value measurement a major new standard. The IASB points out that the biggest difference between the now existing standard and the one to come is defining fair value “as an exit price rather than as a neutral exchange amount.” Agenda Paper 2A.

FASBs fair value measurement prescriptions are said to become effective for public companies interim and annual reporting for fiscal years commencing after December 15, 2011. The annual period-only reporting for private companies is said to be on the same timetable. FASB is also allowing early adoption of the rules for non-public entities thus allowing them to issue interim-period financial reports during the first quarter of the 2012 year. The early adoption also gives private companies the option of mirroring the timetable for public companies before the private companies annual statements for 2012 are required to be in compliance with the new US GAAP rules.

The IASB anticipates that the new rules will apply by January 1, 2013, allowing entities time to analyze requirements and make necessary system changes. The IASB also anticipates permitting the early adoption of new IFRS rules on fair value amendments.

Aside from fair value measurements, FASB also anticipates prescribing disclosures for changes to valuation methods stemming from the application of the new rules and reporting the quantification of the total effect of the change within the companys report footnotes. The FASB board provided that during the adoption period, all entities should disclose any change in valuation technique and related inputs resulting from the application of the amendments and should quantify the total effect.

For more information on FASB, the IASB, and/or the new rules they plan to prescribe, please contact us at contact@fidjlaw.com.