OTHER-THAN-TEMPORARY IMPAIRMENT AND ITS APPLICATION TO CERTAIN INVESTMENTS

No. 2005-65

(November 2005)

SUBJECT: OTHER-THAN-TEMPORARY IMPAIRMENT AND ITS APPLICATION TO CERTAIN INVESTMENTS

PRONOUNCEMENT ANALYZED: FASB Staff Position (FSP) Nos. FAS 115-1 and FAS 124-1

EFFECTIVE DATE: For reporting periods beginning after December 15, 2005, with earlier application permitted.

SUMMARY AND HIGHLIGHTS

COMBINED FASB STAFF POSITION (FSP) FAS 115-1 AND FAS 124-1 PROVIDES GUIDANCE FOR (1) DETERMINING WHEN AN INVESTMENT SHOULD BE CONSIDERED IMPAIRED, (2) DETERMINING WHETHER AN IMPAIRMENT SHOULD BE DEEMED OTHER THAN TEMPORARY, AND (3) MEASURING AN IMPAIRMENT LOSS.

INTRODUCTION

FASB Emerging Issues Task Force (EITF) Issue 03-1, "The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments," became effective for reporting periods beginning after June 15, 2004. In September 2004, the FASB issued proposed FASB Staff Position (FSP) No. EITF 03-1-a that would have provided guidance on the implementation of certain provisions of EITF Issue 03-1. In October 2004, the Board published FSP No. EITF 03-1-1, which indefinitely delayed the effective date of EITF Issue 03-1 until such time as proposed FSP No. 03-1-a was issued in final form. The Board has since decided, based upon responses to the proposed FSP, that the consensus reached in EITF Issue 03-1 should be rescinded. Combined FSP Nos. FAS 115-1 and FAS 124-1, which nullifies certain provisions of EITF Issue 03-1 and completely supersedes EITF Topic D-44, "Recognition of Other Than Temporary Impairment upon the Planned Sale of a Security Whose Cost Exceeds Fair Value," addresses (1) the determination of when an investment is considered impaired, (2) whether such impairment is other than temporary, and (3) the measurement of an impairment loss.

STAFF GUIDANCE

FSP Nos. FAS 115-1 and FAS 124-1 amends FASB Statement of Financial Accounting Standards (SFAS) No. 115, Accounting for Certain Investments in Debt and Equity Securities, SFAS No. 124, Accounting for Certain Investments Held by Not-for-Profit Organizations, and APB Opinion 18, The Equity Method of Accounting for Certain Investments in Common Stock, and applies to:

* Debt and equity securities within the scope of SPAS No. 115.

* Debt and equity securities within the scope of SPAS No. 124 held by an investor that reports a "performance indicator" as defined in the AICPA Guide, Health Care Organizations.

* Cost-method investments (i.e., equity securities not subject to the provisions of...