The FSP retains and emphasizes the OTTI guidance and required disclosures in Statement 115, FSP FAS 115-1 and FAS 124-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments, SEC Staff Accounting Bulletin (SAB) Topic 5M, Other Than Temporary Impairment of Certain Investments in Debt and Equity Securities, and other related literature.
Here are just a few highlights from the FSP (additionally, there are numerous references in the FSP as to what "should" be done)
- It is inappropriate to automatically conclude that a security is not OTTI because all of the scheduled payments to date have been received.
However, it also is inappropriate to automatically conclude that every decline in fair value represents an OTTI.
- Further analysis and judgment are required to assess whether a decline in fair value indicates that it is probable that the holder will not collect all of the contractual or estimated cash flows from the security.
- In addition, [SEC] SAB Topic 5M states that “the length of time and extent to which the [fair] value has been less than cost” can indicate a decline is other than temporary.
- The longer and/or the more severe the decline in fair value, the more persuasive the evidence that is needed to overcome the premise that it is probable that the holder will not collect all of the contractual or estimated cash flows from the security.
- In making its other-than-temporary impairment assessment, the holder should consider all available information relevant to the collectibility of the security, including information about past events, current conditions, and reasonable and supportable forecasts, when developing the estimate of future cash flows.
The FSP is effective for interim and annual reporting periods ending after December 15, 2008, and shall be applied prospectively. Retrospective application to a prior interim or annual reporting period is not permitted. Consistent with paragraph 15 of FSP FAS 115-1 and FAS 124-1, any other-than temporary impairment resulting from the application of Statement 115 or Issue 99-20 shall be recognized in earnings equal to the entire difference between the investment’s cost8 and its fair value at the balance sheet date of the reporting period for which the assessment is made (for example, December 31, 2008, for a calendar year-end entity).
Important! Refer Directly to the FSP
Refer to the FSP directly for further details on all of its accounting and disclosure requirements.
As noted in our post last week summarizing the discussion that took place at the FASB board meeting when the vote was taken to issue this final FSP, 2 FASB board members dissented; their dissenting statement is included in the FSP.
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