FASB Delays Fair Value Effective Date Until 2008

As the Financial Accounting Standards Board churns away on revisions to its proposed standard on fair value measurement, the Board decided it will not expose its latest revisions for a new round of public comment but instead defer the intended effective date into 2008.

FASB acknowledged its has heard several requests to re-expose the standard for further comment because of significant changes the Board has made since initial exposure in June 2004 and again in November 2005, but said it feels confident the work has been given due process, according to a report by the Financial Executives International. The Board said it remains open to comment as it continues to deliberate, and will expose its final work for a “fatal flaw” review. It is targeting June 2006 to finish the standard.

Sondhi

The controversial shift to increasing use of fair value in accounting is likely to give the board pause and further delay the effective date, says Tony Sondhi, president of A.C. Sondhi & Associates and a member of FASB’s Emerging Issues Task Force. “The marketplace is driving that decision to some extent,” he says. “I’d rather they not delay it, but you could make the argument that it’s not such a bad thing to delay it.”

Sondhi acknowledges a variety of fundamental problems in establishing fair values for certain financial assets and liabilities, especially establishing measurements for assets and liabilities that have no obvious, active market. “It’s a difficult, complex marketplace,” he says. “The standard setters are trying, but they’re getting a fair amount of opposition.”

FASB Exposure Draft On Pension Costs Likely This Week

FASB is targeting Thursday or Friday of this week to release its exposure draft rewriting the accounting rules surrounding pensions and other post-employment benefits.

“We are in the final stages of review of the exposure draft,” says FASB project manager Peter Proestakes. “We expect to publish the exposure draft by the end of March. It could be on March 30 or March 31.” The board intends to give the proposed statement a 60-day comment period and to go effect by the end of 2006.

The statement will amend existing accounting literature on pensions and other post-employment benefits, primarily Financial Accounting Statement No. 87, Employers' Accounting for Pensions and FAS No. 106, Employers' Accounting for Postretirement Benefits Other Than Pensions. FASB’s main goal is to bring the funding status and other details regarding companies’ pension and post-employment benefit obligations out of footnotes and onto the financial statements.

When this phase is complete, FASB wants to launch a longer-term project potentially to change how costs of postretirement benefits are recognized and displayed in the financial statements and how obligations are measured. In the interest of convergence, the board also will compare how pension and benefit rules in U.S. Generally Accepted Accounting Principles compare with international standards.

International Standards Board Proposes "Two Statement" Option

The International Accounting Standards Board is proposing to make the presentation of financial statements for companies following international standards more consistent with the U.S. presentation, but still allowing entities the option to present income and expenses in a single statement or two separate statements.

IASB is seeking comments on proposed amendments to International Accounting Standard No. 1, Presentation of Financial Statements, that aim to present financial information more clearly, especially income and expenses, which would be presented separately from changes in equity that arise from transactions with shareholders, IASB said. The change would make IAS 1 more consistent with U.S. GAAP.

IASB and FASB in the U.S. initially agreed in their joint project to examine financial performance reporting to steer the rules toward a single statement, eliminating the two-statement option. IASB balked, however, and decided to retain the two-statement option but state a preference for a single statement. FASB subsequently put off its own planned changes to FAS No. 130, Reporting Comprehensive Income, pending IASB action.

Sullivan

FASB project manager Jenni Sullivan said last fall that IASB had to make a transitional step in its rule-changing process before followers of international rules were ready to embrace a single statement requirement. While U.S. GAAP already required “other comprehensive income” to be included with income instead of equity, international rules do not. Other comprehensive income includes not only income from operations, but also the effects of unrealized gains and losses from available-for-sale securities, cash flow hedges, foreign currency hedges, and unrealized pension costs.

Tweedie

“We believe that these proposals offer benefits to users of financial statements by aggregating information with shared characteristics and providing additional trend information, and at no extra cost to those who prepare the information,” IASB Chairman David Tweedie said in a statement.

IASB and FASB plan to continue the joint financial performance reporting project to the next phase, reconsidering a variety of issues related to the display of information in financial statements.