FASB Votes NOT To Offer Full Delay of 157, Considers Delay for Some Items/Cos.
October 17, 2007
FEI Summary

On Oct. 17, 2007, the Financial Accounting Standards Board (FASB) voted to NOT offer a full scale delay of the effective date of FAS 157, Fair Value Measurement. Without the delay, the standard becomes effective for fiscal years beginning on or after Nov. 15, 2007 and interim periods within those fiscal years. (Thus brokerage houses and other companies with a November 30 year-end would have to begin applying the standard with their fiscal year that begins Dec. 1, 2007; calendar year companies would begin applying the standard first quarter 2008. Early adoption is permitted.)

Financial Executives International's (FEI’s) Committee on Corporate Reporting (CCR) and Small Public Company Task Force (SPCTF) filed a joint comment letter requesting the delay, and FASB had received at least one other comment letter (from the Institute of Management Accountants' (IMAs) Financial Reporting Committee (FRC) requesting a similar delay.

Although FASB rejected offering a full scale delay of FAS 157, it will consider an alternate recommendation at a future board meeting (when staff come back with more information) to decide if it should offer a delay for a specific scope of transactions or companies: i.e. to consider whether to delay the provisions of FAS 157 for just for nonfinancial assets and liabilities (but keep FAS 157 effective this year as scheduled for financial assets and liabilities) and/or whether to provide a delay for private companies and/or small public companies.

In the meantime, FASB Director of Technical and Implementation Activities Russell Golden said today that staff would prioritize bringing to the board’s attention issues raised in FASB’s Valuation Resource Group (VRG) relating to financial assets and liabilities, since there seemed to be significantly less, if any, interest among board members for delaying FAS 157 for financial instruments vs. nonfinancial items.

Board members who were willing to support a full-scale one-year delay (with certain disclosures) were George Batavick, Leslie Seidman and Larry Smith. The four board member majority who voted against the full-scale delay were FASB Chairman Bob Herz and board members Michael Crooch, Tom Linsmeier and Don Young.

Batavick referenced FASB’s push to get the final standard (FAS 157) out in 2006, in spite of serious debate within FASB whether to re-expose the standard at that time - since near-final drafts of the standard had gone through significant changes during two years of redeliberation vs. the original Exposure Draft issued for public comment in 2004. (FEI’s CCR and IMA’s FRC had filed comment letters in 2006 asking FASB to re-expose the draft standard for that reason.) By pushing out the final standard, Batavick described the ensuing lengthy period between issuance of the standard and the effective date as “essentially a field test, albeit we didn’t supervise it.” He was sympathetic with concerns voiced about implementation problems discovered during that time, including significant issues raised by the Valuation Resource Group (VRG), which held its first meeting this month.

In favoring a full-scale delay, Batavick had said, “I think VRG should be given more time for those issues." He added, "I accept big financial institutions have figured it out, but there are so many others that aren’t ready to adopt it, we can’t ignore it.”

However, as noted above, the majority of the board voted not to offer a full scale delay of all aspects of the standard for all companies, although they will consider at a future meeting whether to delay just the nonfinancial instruments portion, or delay for certain companies such as private companies and/or small public companies.

As summed up by FASB Chairman Bob Herz,  “The next step is to do a little more work; if you [staff] come back persuasively and say it’s not operational, I may change my mind.”

Other Matters Discussed 
Other matters discussed at the FASB board meeting included the definition of an asset (within the conceptual framework project) and certain leasing issues. Additionally, FASB staff presented their proposed model for hedge accounting for fair value hedges of nonfinancial assets and liabilities and certain lease-related items. FASB board members questioned staff at length as to the proposed scope of this issue -- i.e., whether there should be differences between the proposed model and FAS 159, the Fair Value Option.

Other Guidance on FASB Decision Re: FAS 157:

Deloitte Financial Reporting Alert

KPMG Defining Issues

PricewaterhouseCoopers - Flashline

Updated Oct. 24, 2007 by Edith Orenstein, Director, Technical Policy Analysis, Financial Executives International (FEI). This summary does not represent FEI opinion unless specifically noted above.