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FASB Proposes Changes to Fair Value Disclosures

In September, the Financial Accounting Standards Board (FASB) issued a draft proposal including new standards for disclosures regarding recurring and non-recurring fair value measurements.  The most radical proposed change is to disclosures about the sensitivity of fair value measurements of "Level 3" securities to changes in the assumptions used in valuing them.  The FASB proposed three new disclosure requirements:


    1. Information about the sensitivity of certain fair value measurements: If a change in one or more of the significant inputs to a Level 3 fair value measurement would significantly change the fair value, the reporting entity would state that fact and disclose the effect of those changes.


    1. Information about transfers in and/or out of Levels 1 and 2: A reporting entity would disclose information about significant transfers in and out of Levels 1 and 2 and the reasons for the transfers.


    1. Gross reporting of changes in Level 3 fair value measurements: Information about purchases, sales, issuances, and settlements, included in the reconciliation of Level 3 fair value measurements, would be presented on a gross basis rather than a net basis."


The proposed requirement for disclosures about sensitivity of fair value measurements has been received critically, and has drawn the disapproval of a number of industry participants.

In addition, the FASB proposed two clarifications of existing disclosure requirements:


    1. Level of disaggregation: An entity is currently required to provide fair value measurement disclosures for each major category (class) of assets and liabilities, and the Board plans to provide guidance on the meaning of the term class. The Board believes a class is often a subset of assets or liabilities within a line item in the statement of financial position. An entity would apply judgment in determining the appropriate classes of assets and liabilities.


    1. Disclosures about inputs and valuation techniques: An entity is currently required to provide disclosures about the valuation techniques used to measure fair value. The Board will clarify that the disclosures about the inputs used are required for both recurring and nonrecurring fair value measurements. The Board also will clarify that those disclosures are required for fair value measurements that fall in both Level 2 and Level 3."


If finalized and adopted, these new disclosure requirements will be effective for interim and annual periods ending after 15 December 2009, with the exception of the sensitivity disclosures required for Level 3 measurements, which, if approved, will be required for interim and annual periods ending after 15 March 2010.

The full text of the FASB's proposed Accounting Standards Update, "Proposed Accounting Standards Update—Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements (issued 8/28/09)" is available at:

E&Y's discussion of the effects of the proposed ASU is available at: