Wednesday, February 18, 2009

FASB Adds Projects On Fair Value, More

At its board meeting earlier today (Feb. 18), FASB Chairman Robert Herz announced the board is adding a number of new projects to its agenda, including - but not limited to - a number of short-term projects on fair value accounting and disclosure (see related FASB press release), and detailed further below. Per Herz’ remarks, here are the projects FASB is adding to its agenda:

Fair Value Accounting
This will be a short term project to try to provide additional application guidance on fair value measurements in the current environment, including:
  • determining when a market for an asset or a liability is active or inactive;
  • determining when a transaction is distressed; and
  • applying fair value to interests in alternative investments, such as hedge funds and private equity funds. Herz noted the NAV project would “consider the measurement basis for Net Asset Values (NAV) for alternative investments, and how that interacts with FAS 157.” He added, “that’s something that a group at the AICPA has been looking at, and [the AICPA] has a paper out for comment, but at our meeting with our Valuation Resource Group, seemed like something we ought to look at as well.” Herz added, “My understanding is the NAV project is pretty short term, [with the] goal of getting guidance [out], particularly for not-for-profits - when they [have] investments with hedge funds, private equity funds- [to get that guidance out] in time for June 30 year-ends.”

Potential additional disclosures under FAS 157.

Regarding potential new disclosures, Herz said, “A number of users have asked us [to] includ[e] things like:

  • sensitivity analysis,
  • transfers between categories"

As to timing of the disclosure project, he said, “We’ll have to see what we come up with,” adding if anything, to try to get it “in place 2009 year end, if not sooner.”

He noted this project is in addition to Proposed FSP FAS 107-b which is currently out for comment until March 2nd, which proposes to expand the FAS 107 fair value disclosures for financial instruments to be provided at interim periods, not just annual periods). The fair value projects are described in a press release issued by FASB earlier today.

Deferred Tax Assets and Liabilities

  • Herz said, “A project has been added on application issues related to accounting for deferred taxes and liabilities on available debt securities that are expected to be held for recovery.”
  • He added, “Right now there’s two methods out there in practice for considering the need for a valuation allowance or not, in the fall the SEC staff said they would, in the interim , accept both, provided there is a policy disclosure, but people believe there should be one method, so we’re going to look at that.”
  • As to timing, he described this project as ‘fairly short term.’

Real Estate Investment Funds
Herz said, “We’ll start looking at, the staff is trying to assemble a working group on issue under real estate investment fund reporting, under the investment company (audit) guide… to see if we can provide some guidance.” He did not specify timing, saying this project is more ‘exploratory’ at this point.

Oil and Gas (FAS 69):

Herz said, “We’ll look at amendments to FAS 69 oil & gas disclosures pursuant to changes the SEC recently made to their requirements that have some knock-on effects on our standards.”

Annual Improvements Project
Herz said “We’ll try to have an annual improvements project, where things come up that may be somewhat [in the] nature of technical corrections, [or] somewhat in the nature of two types of treatments; [which] probably can [be] resolve[d] fairly quickly.” See also "jackpot liabilities" below, which would be part of this project.

Jackpot Liabilities of Casinos
Herz noted, “In the first annual improvements project, [we will] look to issue of treatment of base jackpot liabilities of casinos, [there are] different methods, some feel are not in accordance with base literature.” As to timing, he said he expects the annual improvements project to be taken up ‘mid-year.’

Consolidation of Noncontrolling Interests
Herz said, “We’ll [FASB will] ask the EITF [FASB's Emerging Issues Task Force] to broaden some of the discussion it’s had relating to application of FAS 160 on consolidation of Noncontrolling Interests, to broaden to a few other matters that have come to our attention.”

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