The Financial Accounting Standards Board (FASB) has issued FASB Staff Position (FSP) No. FAS 157-1, Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or Measurement under Statement 13. This FSP amends FASB Statement No. 157, Fair Value Measurements, to exclude FASB Statement No. 13, Accounting for Leases, and other accounting pronouncements that address fair value measurements for purposes of lease classification or measurement under Statement No.13. However, this scope exception does not apply to assets acquired and liabilities assumed in a business combination that are required to be measured at fair value under Statement No. 141, Business Combinations, or No. 141 (revised 2007), Business Combinations, regardless of whether those assets and liabilities are related to leases.
The FASB has issued this FSP because issues stemming from the interaction between the fair value measurement objective in Statement No. 13 and the fair value measurement objective in Statement No 157 may result in a change in lease accounting that requires consideration of lease classification criteria and measurements in leasing transactions that are beyond the scope of Statement No. 157. The FSP restores the original definition of the term “fair value” in Statement No. 13 to “the price for which the property could be sold in an arm’s-length transaction between unrelated parties.” Statement No. 157 had amended the definition of the term “fair value” in Statement No. 13 to “the price that would be received to sell the property in an orderly transaction between market participants at the measurement date. Market participants are buyers and sellers that are independent of the reporting entity, that is, they are not related parties at the measurement date.”
The FASB has on its agenda a project to comprehensively reconsider the lease accounting provisions in Statement No. 13.
The FSP is effective upon the initial adoption of Statement No. 157. Statement No. 157 is effective for years beginning after November 15, 2007. An entity that applied Statement No. 157 in a manner consistent with the provisions of FSP 157-1 would continue to apply the provisions of the FSP from the date of the initial adoption of Statement No. 157. However, an entity that did not apply Statement No. 157 in a manner consistent with the provisions of the FSP must retrospectively apply the provisions in the FSP to the date of the initial adoption of Statement No. 157.
The FSP is available in full at http://www.fasb.org/pdf/fsp_fas157-1.pdf.
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