NORWALK, Conn. (1/8/16)--An accounting standards update issued this week by the Financial Accounting Standards Board (FASB) is intended to improve the recognition and measurement of financial instruments.

The update affects public and private companies, not-for-profit organizations and employee benefit plans that hold financial assets or owe financial liabilities.

The new guidance makes improvements to existing generally accepted accounting principles by:

• Requiring equity investments (except those accounted for under the equity method of accounting, or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income;
   
• Requiring public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes;
   
• Requiring separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or the accompanying notes to the financial statements;
   
• Eliminating the requirement to disclose the fair value of financial instruments measured at amortized cost for organizations that are not public business entities;
   
• Eliminating the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; and
   
• Requiring a reporting organization to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the organization has elected to measure the liability at fair value in accordance with the fair value option for financial instruments.

The update will take effect for public companies for fiscal years starting after Dec. 15, 2017. For private companies, not-for-profit organizations and employee benefit plans, the standard becomes effective for fiscal years beginning after Dec. 15, 2018.