Fitch advocates expanded disclosure in response to proposed change in GAAP accounting standards

Fitch Ratings is advocating expanded disclosure in response to a proposal by the Financial Accounting Standard Board (FASB) to change the U.S. GAAP method for determining whether an investment is other-than-temporarily impaired.
Currently under U.S. GAAP, an issuer is required to determine whether a non-trading investment is other-than-temporarily impaired when the current fair value of the investment is less than the cost basis.
If management does not believe it will recover the full-cost basis of the investment, it must write down the security to fair value, taking the difference as a charge to income.
If management believes, on the other hand, that full recovery is probable, it must assert it has the ability and intent to hold the impaired security to recover to avoid taking an impairment charge to earnings.
Under the FASB’s proposed standard, management no longer needs to say it has the ability and intent to hold an impaired security to avoid the charge. Rather, management must assert that it does not have the intent to sell the security and it is more likely than not that it will not have to sell the security before its recovery.
“Because much of [the FASB’s] proposals hinge on either the intent and/or estimations provided by management, the proposed qualitative disclosures by themselves may not be sufficient for financial market professionals’ understanding of the impairment and fair value conclusions reached by an issuer,” Fitch notes in a press release announcing its report.
“Absent increased disclosures, investors and analysts may assume the issuer has taken the least conservative approach to valuation and impairment,” said Dina Maher, senior director of Fitch Ratings.
Fitch says if the FASB proposals are adopted, disclosures by issuers should be expanded to allow for thorough and meaningful analysis, regardless of the minimum requirements.