ASC 820 Amendments

DerivActiv helps both public and private entities comply with Fair Value Measurements and Disclosures (ASC 820), formerly FAS 157 as it relates to derivatives and other hedging products.

Issued in September 2006 by the Financial Accounting Standards Board (FASB), Fair Value Measurements and Disclosures (ASC 820), formerly known as FAS 157, standardizes the definition of “fair value,” provides a framework for determining the fair value of assets and liabilities (including derivatives and hedging products) by using a hierarchy of inputs (Level 1, Level 2, Level 3), requires using traditional approaches for valuation techniques (market, income, and/or cost), and clarifies the need to include market assumptions about risk, market illiquidity, and nonperformance risk in measuring fair value. While ASC 820 is complex, its purpose is to reduce the ambiguity in measuring fair value for financial statements.

To speak to a ASC 820 expert, call at 1-866-200-9012.

ASC 820 Amendments

In December 2009, ASC 820 was amended with the following additional reporting requirements:

ASC 820 emphasizes that fair value measurements should be based upon assumptions that would be used in pricing the asset or liability by market participants. As such it establishes a three level hierarchy of inputs to be used for measuring fair value. Level 1 inputs are quoted prices that are available in active markets for identical assets or liabilities as of the measurement date. Level 2 pricing inputs are other than quoted prices in active markets and are either directly or indirectly observable for the asset or liability as of the measurement date. Level 3 inputs are unobservable inputs used in cases where financial instruments are considered illiquid, with little or no market activity and little or no pricing information on the measurement date.

• Disclose the amounts of significant transfers in and/or out of Level 1 and Level 2 fair value measurements and the reasons for the transfers
• In the reconciliation for fair value measurements using significant unobservable inputs (Level 3), a reporting entity should present information about purchases, sales, issuances, and settlements on a gross basis rather than as one net number.
• Provide fair value measurement disclosures for each class of assets and liabilities. A class is often a subset of assets or liabilities within a line item in the statement of financial position. A reporting entity should apply judgment in determining the appropriate classes of assets and liabilities.
• Provide disclosures about the input and valuation techniques used to measure fair value for both recurring and nonrecurring fair value measurements. Those disclosures are required for fair value measurements that fall in either Level 2 or Level 3.

Final amendments to ASC 820 will be effective for reporting periods starting after December 15, 2009, except for the requirement to provide the Level 3 activity for sales, purchases, issuances, and settlements on a gross basis, which will be effective for reporting periods beginning after December 15, 2010.

To learn more about how DerivActiv professionals can help your organization with ASC 820 compliance, call 866-200-9012. Contact us to request a free demonstration.

If you are interested in learning more about ASC 820 (formerly FAS 157), you can download a ASC 820 white paper.