Cumbersome Disclosure (FASB 107) </li></ul> Everything was not perfect. Accountant Before 1993<br />
We need FASB #115 <br /> Current Fair Value Reporting: FASB#107 (1991)<br /><ul><li>Is cumbersome, inconsistent, and confusing
Does not permit analysts to gauge value and risk
Does not disclose assumptions for gain on sale computations</li></ul>Accountant<br />
1993<br />FASB Statement No. 115 Accounting for Certain Investments in Debt and Equity Securities<br />
Keep valuation adjustments on the balance sheet until <br />they are earned!<br />Three Categories:<br />Trading securities<br />Hold to maturity<br />Available for sale<br /> Classify financial assets<br /> according to <br />management intention!<br />
Securities that will be held for a short period of time for trading purposes. <br />Debt securities the company has the positive intent and ability to hold until maturity. <br /> a) debt securities not classified as held to maturity and b) debt and equity securities that are not classified as trading securities are available for sale.<br />
FASB 115<br />Market Value = Fair Value<br /><ul><li>F.V. of Trading Securities - Income Statement.
F. V. of AFS Securities – SH.Equity Section</li></li></ul><li>Balance Sheet (AFS)<br />ASSETS<br />LIABILITIES<br />EQUITY<br />Adjustment to:<br />Unrialized gain/ losses on investments from FV. <br />Shareholder’s Equity seccion.<br />
FASB 115,Securities with fair market value below cost basis are impairer.<br />If impairment is determined to be other than temporary, cost basis of individual security must be written down to fair value through income statements.<br />
Fannie Mae and Freddie Mac(2008) significant decline in market price of their stock, these securities are presumed to have other-than-temporary impairment losses if their cost basis is well in excess of current market prices.<br /><ul><li>These losses are considered realized and must be recognized in the income statement.
Losses are capital losses for tax purposes.</li></li></ul><li> The Life Of An Accountant after the Year 1993<br /><ul><li> More accurate valuation
More difficult to explain</li></ul>Jose,Hmmm…<br />Fair Value Accounting…<br />Equity Adjustments…<br />Change is hard...<br />
“Change is hard, Jose.”<br />FASB no.115, is here to stay. You will love no. 114<br />
REFERENCES<br />Summary of Statement No. 115,retrieved on Nov.4, 2009 from;<br />http://www.fasb.org/summary/stsum115.shtml<br />Financial Accounting Standard Board,retrieved on Nov.4, 2009 from;<br />http://www.fasb.org/jsp/FASB/Page/03-16-09_otti.pdf<br />FASB 115: it's back to the future 115,retrieved on Nov.4, 2009 from;<br />http://www.thefreelibrary.com/FASB+115:+it's+back+to+the+future+for+market+value+accounting.-a014381134<br />Summary of Statement No. 107, retrieved on Nov.4, 2009 from;<br />http://www.fasb.org/pdf/fas107.pdf<br />