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New guidance on other-than-temporary impairment covered in Issue 99-20.
The FASB has issued FSP No. EITF 99-20-1, Amendments tothe ImpairmentGuidance of EITF IssueNo.99-20.The FSP amends the impairment guidance in Issue 99-20 (FASB ASC 325-40), "Recognition of Interest Income and Impairment on Purchased Beneficial Interests and Beneficial InterestsThatContinue toBe Held by a Transferor in Securitized FinancialAssets,"to achievemore consistent determination of whether an other-than-temporary impairment has occurred. This FSP also retains the other-than-temporary assessment and related disclosure requirements in FAS 115 (FASBASC320-10),Accountingfor CertainInvestments inDebt andEquity Securities, and other related guidance.
Different Impairment Models
If the fair value of an available-forsale or held-to-maturity debt security is less than its cost basis at the measurement date,U.S.generally accepted accounting principles (GAAP) require that the reporting entity assess the impai red secur it y to determine whether the impairment is other than temporary. There are two different models for determining whether the impairment of a debt security is other than temporary, one for securities that are covered by Issue 99-20 (FASB ASC 325-40) and one for securities covered by FAS 115 (FASB ASC 320-10). The differences between the two models are summarized as follows:
* Issue 99-20 (FASB ASC 325-40) requires the use of market participant assumptions about future cash flows. This cannot be overcome by management judgment of the probability of collecting all cash flows previously projected.
* FAS 115 (FASB ASC 320-10) does not require exclusive reliance on market participant assumptions about future cash flows. Rather, FAS 115 permits the use of reasonable management judgment of the probability that the holder will be unable to collect...