On June 29, 2010, the International Accounting Standards Board (IASB) issued for public comment an exposure draft on the fair value measurement of Level 3 assets and liabilities.
The IASB’s proposed amendment would require entities to disclose a measurement uncertainty analysis for all instruments categorized as level 3. Additionally, an entity would need to consider the effect of correlation between unobservable inputs, if any. In other words, an entity would disclose the impact on the fair value measurement of changing one or more of the assumptions used in its analysis. This sensitivity analysis would provide readers of the financial statements information relative to the uncertainty inherent in fair value measurements categorized as Level 3. The exposure draft period ends September 7, 2010.
The Financial Accounting Standards Board (FASB) issued a similar exposure draft earlier in June 2009 that proposed amendments to Accounting Standards Codification (ASC) Topic 820 “Fair Value Measurements and Disclosures”. However, in its final Accounting Standards Update (ASU) issued on the Topic in January 2010 and effective for fiscal years beginning after December 15, 2010, the ASU only required information about purchases, sales, issuances and settlements to be presented separately (i.e., present the activity on a gross basis rather than net) in the reconciliation for fair value measurements using significant unobservable inputs (Level 3 inputs) without requiring disclosures related to a Company’s sensitivity evaluation of Level 3 measurements.
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