FASB Publishes Two Standards to Streamline Company Disclosures
For years, companies have asked the Financial Accounting Standards Board (“FASB”) to improve its guidance on fair value measurement and pension disclosures. Their requests were finally granted last week in the form of two Accounting Standards Updates (“ASU”):
- ASU No. 2018-13, Fair Value Measurement (Topic 820) Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement, aims to remove irrelevant disclosures concerning methods for assessing the fair value of certain assets and liabilities as stated under FASB ASC 820, Fair Value Measurement. The standard divides fair value measurements into a three-tier fair value hierarchy conditional on the reasoning used in the measurement. The standard requires details about how businesses and organizations come up with these measurements. ASU No. 2018-13 trims some disclosure requirements, such as how many and why transfers among Level 1 and Level 2 of the fair value hierarchy occur, and what the policy is for timing transfers between Levels 1 and 2. The standard also amends some current requirements.
- ASU No. 2018-14, Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20) Disclosure Framework — Changes to the Disclosure Requirements for Defined Benefit Plans, eliminates several disclosure requirements that companies deem immaterial. The standard introduces two new requirements:
- The weighted-average interest crediting rates for cash balance plans and other plans with promised interest crediting rates; and
- A description of the reasons for significant gains and losses concerning changes in the benefit obligation for the period.
Companies have blamed the disclosure rules under FASB ASC 715 Compensation—Retirement Benefits, as a top reason why their financial statements are so long. Conversely, investors consider the disclosure requirements as a way to understand key responsibilities of some companies.
All companies must apply ASU No. 2018-13 to fiscal years, including interim periods within those years, starting after December 15, 2019. For ASU No. 2018-14, public companies must apply the standard to fiscal years ending after December 15, 2020. All other entities must apply ASU No. 2018-14 to fiscal years ending after December 15, 2021. Early adoption is permitted.