FASB issued an exposure draft of a proposed Accounting Standards Update that would affect all entities that are required to make disclosures about recurring and nonrecurring fair value measurements. The board says the proposal would improve Fair Value Measurements and Disclosures—Overall Subtopic (Subtopic 820-10) of the FASB Accounting Standards Codification. The standard was originally issued as FASB Statement no. 157, Fair Value Measurements.
FASB’s proposal is based on input received from users of financial statements. Users requested more information about fair value measurements that use significant unobservable inputs (Level 3 inputs) because of their greater degree of uncertainty and subjectivity. For Level 3 inputs, the board proposed disclosures about any significant effects on fair value measurements if the reporting entity uses reasonably possible alternative inputs.
FASB said the proposal also addresses requests from users for segregating information for different classes of assets and liabilities that are determined based on their nature and risk characteristics and their placement in the fair value hierarchy (Level 1, 2 or 3). The board said users need more robust disclosures about valuation techniques and inputs for both Level 2 and Level 3 measurements because many consider these measurements to be less reliable than Level 1 measurements.
Comments are due Oct. 12.
FASB also issued three ASC amendments last week:
■ Accounting Standards Update no. 2009-05, Fair Value Measurements and Disclosures (Topic 820)—Measuring Liabilities at Fair Value, which clarifies which techniques must be used in valuing liabilities in certain circumstances. The amendments also clarify that when estimating the fair value of a liability, a reporting entity is not required to include a separate input or adjustment to other inputs relating to the existence of a restriction that prevents the transfer of the liability. Also, the amendments clarify that both a quoted price in an active market for the identical liability at the measurement date and the quoted price for the identical liability when traded as an asset in an active market when no adjustments to the quoted price of the asset are required are Level 1 fair value measurements.
■ Accounting Standards Update no. 2009-03, Amendments to Various Topics Containing SEC Staff Accounting Bulletins , contains technical corrections to various Topics containing SEC Staff Accounting Bulletins to update cross-references to Codification text.
■ Accounting Standards Update no. 2009-04, Accounting for Redeemable Equity Instruments: Amendment to Section 480-10-S99, is an update to Section 480-10-S99, Distinguishing Liabilities from Equity, per EITF Topic D-98, Classification and Measurement of Redeemable Securities.