The Financial Accounting Standards Board has finalized a new update to accounting standards to make a number of technical corrections and improvements to the Accounting Standards Codification, including some updates to fair value guidance that merit more than a passing glance.

Titled Accounting Standards Update No. 2012-04 -- Technical Corrections and Improvements, the housekeeping measure is meant to address various concerns that have been brought to the FASB's attention but that don't necessarily merit a standalone standard-setting project. FASB opened a project in November 2010 that is meant to serve as an ongoing repository for such issues, which previously FASB would address in separate standard-setting projects, even when they made minor or industry-specific changes to accounting standards.

FASB manages updates to the Codification through such technical corrections and improvements when it expects the changes to correct unintended application issues that are not expected to have a significant effect on current accounting practice or create significant administrative cost or burden for most companies. The latest updates, however, is not limited to minor, technical corrections, FASB says. It also includes a handful of more substantive, but limited-scope improvements that make narrow, incremental improvements to GAAP, especially related to fair value.

The updates to fair value guidance include amendments that are intended to conform terminology and clarify certain guidance in various topics of the Codification to more accurately reflect the fair value measurement and disclosure requirements explained in Topic 820 on fair value. FASB says the amendments do not introduce any new fair value measurement requirements and are not intended to change any current requirements or principles in U.S. Generally Accepted Accounting Principles. However, FASB warns, they could result in some changes in existing practices.

As examples, FASB focuses special attention on four specific provisions related to fair value that preparers should study closely:

Paragraph 31 of the update addresses scope and scope exceptions related to derivatives and hedging, especially involving contracts in an entity's own equity. FASB says when a particular instrument does not meet the criteria to be considered indexed to an entity's own stock as described in GAAP then it should be classified as a liability or an asset.

Paragraph 271 addresses the accounting for defined contribution pension plans. FASB says fair value of investments should be reduced by brokerage commissions and other costs normally incurred in a sale, and that companies should follow the usual fair value hierarchy when plan investments do not have “Level 1” or readily observable market prices.

Paragraph 274 addresses presentation matters for net assets for benefits, instructing companies to reduce net assets reflecting all investments at fair value by any costs incurred to sell, if significant.

Paragraphs 277 through 285 provide some additional guidance regarding reducing investment valuations by costs to sell and clarifying disclosure requirements.

FASB says the amendments that will not have transition guidance will be effective immediately for both public and nonpublic entities. For public companies, amendments that are subject to transition guidance will be effective for fiscal periods beginning after Dec. 15, 2012.

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