FASB: Decisions on Mark to Market Accounting
FASB recently approved its new accounting standard, Recognition and Measurement of Financial Assets and Liabilities (Subtopic 825-10). The accounting standard culminated a lengthy process of over five years. Initially the proposal called for the marking to market of all financial assets and liabilities.
Many members of the banking community and others argued that financial instruments that are not intended to be sold should not be marked to market.
Under the new standard, certain equity investments are required to be carried at fair value, with changes in fair value recognized in net income. This would apply to equity investments with readily determinable market values that are not consolidated or carried on the equity method.
Debt securities classified as available for sale would continue to be carried at fair value with changes running through equity.
The standard also reduced or eliminated several financial reporting requirements for both public and private companies. One of these (for private companies) is the elimination of the requirement to disclose fair values of financial assets and liabilities.
For public companies on a calendar year end, the standard takes effect in 2018 while, for private companies, it is 2019. Certain provisions may be adopted before the effective date include the exempting of private companies from the requirement to disclose fair values of financial assets and liabilities. If you would like the full text of the standard, click here.