The FASB has already issued 8 new accounting standard updates this year. Here is a summary of the 6th one.
In January 2010, the FASB issued ASU 2010-06- Improving Disclosures about Fair Value Measurements. ASU 2010-06 requires additional disclosures about fair value measurements including transfers in and out of Levels 1 and 2 and a higher level of disaggregation for the different types of financial instruments. For the reconciliation of Level 3 fair value measurements, information about purchases, sales, issuances and settlements should be presented separately. This ASU is effective for annual and interim reporting periods beginning after December 15, 2009 for most of the new disclosures (Yes, this means it was effective for calendar year companies before it was issued) and for periods beginning after December 15, 2010 for the new Level 3 disclosures. Comparative disclosures are not required in the first year the disclosures are required.
1. What are the new disclosures that are effective for the 1st quarter 2010 10Q?
a. The amounts of significant transfers between Level 1 and Level 2 and the reasons for the transfers.
Significant transfers into Level 1 or 2 are to be disclosed separately from transfers out of these Levels. To determine if the amount of the transfers are significant, they should be compared to Earnings and Total Assets or Total Liabilities or if the changes are recorded in Other Comprehensive Income (OCI), the transfers should be compared to Total Equity.
The entities policy for recognizing the timing of the transfers (such as the actual date, beginning of reporting period or end of the reporting period) needs to be disclosed and consistently followed.
b. A description of the valuation technique and inputs for Level 2 and Level 3.
The valuation technique used to value Level 2 and Level 3 inputs (i.e. income, market or cost approach) is to be disclosed along with the inputs used to determine the fair value of the instrument. Any changes in the valuation technique should be disclosed along with the reason for making the change.
The disclosures for the assets and liabilities measured at fair value are to be presented based on each class of financial instrument instead of each major category. Each class should be separated based on the basis of the nature and risks of the investments. These disclosures often will require greater disaggregation than the line items in the statement of financial position. Level 3 assets and liabilities should be more disaggregated than Level 1 or Level 2 due to the increased risk of these instruments. This means you need to add more lines to your tables.
d. Derivative assets and liabilities
Derivative assets and liabilities are to be presented on a gross basis, similar to the disclosures in FASC 815, expect for the Level 3 disclosures which can be presented gross or net. This means you have to separate out any netting of gains and losses for each counterparty and any netting of collateral. A separate column will need to be added to reconcile the gross amount to what is disclosed on the balance sheet, similar to your derivative tables.
2. What are the new disclosures that are effective for the 1st quarter 2011 10Q?
a. Changes to the Level 3 Reconciliation
Total gains or losses recorded in earnings for the period are to be presented separately from
total gains or losses recorded in OCI for the period along with where they are reported in net income or OCI.
Purchases, sales, issuances and settlements are to be presented separately instead of the current guidance which allows a net presentation of these items.
As with the Level 1 and Level 2 inputs, significant transfers into Level 3 are to be separately disclosed from transfers out of Level 3 and the entity’s policy for the timing of recognizing the transfers needs to be disclosed.
FASC 715 – Compensation – Retirement Benefits – Defined Benefit Plans is updated by this ASU to require the additional disaggregation of the disclosures. This applies to your pension plan assets.