FASB Amends Subsequent Events; Update On Financial Instruments

Yesterday, FASB announced an amendment to its Subsequent Events standards. The amendment, announced through the issuance of Accounting Standards Update No. 2010-09 - Subsequent Events (Topic 855): Amendments to Certain Recognition and Disclosure Requirements (ASU 2010-09) can potentially impact private and public companies, and takes effect immediately. FASB's Action Alert issued last night states:

Accounting Standards Update No. 2010-09 was issued on Feb. 24, 2010. It describes amendments that clarify:

• Which entities are required to evaluate subsequent events through the date the financial statements are issued
• The scope of the disclosure requirements related to subsequent events.

The amendments have the potential to change reporting by both private and public entities; however, the nature of the change may vary depending on facts and circumstances. All entities, both public and private, are encouraged to evaluate the effect of these changes as soon as practicable because, as discussed below, the amendments are effective immediately for all entities other than conduit debt obligors.

When the Amendments Are Effective:
All of the amendments in this Update are effective immediately and shall be applied prospectively, except as follows.

The use of the issued date for a conduit debt obligor for conduit debt securities that are traded in a public market is required in interim or annual periods ending after June 15, 2010.

UPDATE ON FINANCIAL INSTRUMENTS
As reported today by Steven Burkholder in BNA's Daily Report for Executives, in FASB May Defer Date of Planned Financial Instruments Rules for Smaller Private Banks:

The Financial Accounting Standards Board tentatively decided Feb. 24 to delay the effective date of planned new rules on financial instruments for private banks and other private enterprises that have consolidated total assets of less than $1 billion.

Under the terms of FASB's preliminary decisions at its weekly meeting, such private entities would have a four-year grace period after the effective date—yet to be specified—for public entities and larger private banks and other companies to follow current, more cost-based recognition and measurement prescriptions.

However, the enterprises that would be afforded the deferral would have to disclose fair values of loans, at their exit prices, in footnotes to the financial statements.

Burkholder added there was a 'contentious debate' at yesterday's FASB board meeting over the deferral/scope exception. With respect to the upcoming proposed standard generally, which would require financial instruments (including loans and core deposit intangibles, which prompted the deferral noted above) to be carried at fair value, with certain changes in fair value recognized in Other Comprehensive Income (a component of equity) vs. Net Income:

[FASB Board members Leslie] Seidman and [Larry] Smith—who favor more of a cost-based approach for recognition and measurement of financial instruments—plan to write formal statements of their alternative, dissenting views on the overall approach to financial instruments to be proposed by FASB's majority, made up of Chairman Robert Herz and members Thomas Linsmeier and Marc Siegel. Alternative views registered in FASB proposals often presage formal dissents to final standards.

I encourage you to read Burkholder's article in its entirety (BNA subscription required) for other gems from the discussion at yesterday's FASB board meeting.

See also FASB's Summary of Board Decisions, which reports on the above matter, as well as other matters discussed at yesterday's FASB board meeting on the financial instruments project (including fair valuing liabilities), and on the separate project on disclosures of credit quality and the allowance for credit losses.

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