[Federal Register Volume 74, Number 73 (Friday, April 17, 2009)]
[Rules and Regulations]
[Pages 17769-17770]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-8801]


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SECURITIES AND EXCHANGE COMMISSION

17 CFR Part 211

[Release No. SAB 111]


Staff Accounting Bulletin No. 111

AGENCY: Securities and Exchange Commission.

ACTION: Publication of Staff Accounting Bulletin.

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SUMMARY: This staff accounting bulletin (``SAB'') amends Topic 5.M. in 
the Staff Accounting Bulletin Series entitled Other Than Temporary 
Impairment of Certain Investments in Debt and Equity Securities 
(``Topic 5.M.''). On April 9, 2009, the FASB issued FASB Staff Position 
No. FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-
Than-Temporary Impairments (``FSP 115-2'') to provide guidance for 
assessing whether an impairment of a debt security is other than 
temporary. This SAB maintains the staff's previous views related to 
equity securities. It also amends Topic 5.M. to exclude debt securities 
from its scope.

DATES: Effective April 13, 2009.

FOR FURTHER INFORMATION CONTACT: Robert Malhotra, Senior Advisor, or 
Adam Brown, Professional Accounting Fellow, Office of the Chief 
Accountant, at (202) 551-5300; or Stephanie Hunsaker, Associate Chief 
Accountant, Division of Corporation Finance, at (202) 551-3400, 
Securities and Exchange Commission, 100 F Street, NE., Washington, DC 
20549.

SUPPLEMENTARY INFORMATION: The statements in staff accounting bulletins 
are not rules or interpretations of the Commission, nor are they 
published as bearing the Commission's official approval. They represent 
interpretations and practices followed by the Division of Corporation 
Finance and the Office of the Chief Accountant in administering the 
disclosure requirements of the Federal securities laws.

    Dated: April 13, 2009.
Elizabeth M. Murphy,
Secretary.

PART 211--[AMENDED]

0
Accordingly, Part 211 of Title 17 of the Code of Federal Regulations is 
amended by adding Staff Accounting Bulletin No. 111 to the table found 
in Subpart B.

Staff Accounting Bulletin No. 111

    This staff accounting bulletin (``SAB'') hereby amends and replaces 
Topic 5.M. in the Staff Accounting Bulletin Series entitled Other Than 
Temporary Impairment of Certain Investments in Debt and Equity 
Securities (``Topic 5.M.''). On April 9, 2009, the FASB issued FASB 
Staff Position No. FAS 115-2 and FAS 124-2, Recognition and 
Presentation of Other-Than-Temporary Impairments (``FSP 115-2'') to 
provide guidance for assessing whether an impairment of a debt security 
is other than temporary. Topic 5.M. (as amended) maintains the staff's 
previous views related to equity securities. It also amends Topic 5.M. 
to exclude debt securities from its scope.

    Note: The text of SAB 111 will not appear in the Code of Federal 
Regulations.

Topic 5: Miscellaneous Accounting

* * * * *

M. Other Than Temporary Impairment of Certain Investments in Equity 
Securities

    Facts: FASB Staff Position No. FAS 115-2 and FAS 124-2, Recognition 
and Presentation of Other-Than-Temporary Impairments (``FSP 115-2'') 
does not define the phrase ``other than temporary'' for available-for-
sale equity securities. For its available-for-sale equity securities, 
Company A has interpreted ``other than temporary'' to mean permanent 
impairment. Therefore, because Company A's management has not been able 
to determine that its investment in Company B's equity securities is 
permanently impaired, no realized loss has been recognized even though 
the market price of Company B's equity securities is currently less 
than one-third of Company A's average acquisition price.
    Question: For equity securities classified as available-for-sale, 
does the staff believe that the phrase ``other than temporary'' should 
be interpreted to mean ``permanent''?
    Interpretive Response: No. The staff believes that the FASB 
consciously chose the phrase ``other than temporary'' because it did 
not intend that the test be ``permanent impairment,'' as has been used 
elsewhere in accounting practice.\1\
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    \1\ FASB Staff Position No. 115-1 and 124-1, ``The Meaning of 
Other-Than-Temporary Impairment and Its Application to Certain 
Investments'' refers to this SAB for a discussion of considerations 
applicable to a determination as to whether a decline in market 
value below cost of an equity security, at a particular point in 
time, is other than temporary.
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    The value of investments in equity securities classified as 
available-for-sale may decline for various reasons. The market price 
may be affected by general market conditions which reflect prospects 
for the economy as a whole or by specific information pertaining to an 
industry or an individual company. Such declines require further 
investigation by management. Acting upon the premise that a write-down 
may be required, management should consider all available evidence to 
evaluate the realizable value of its investment in equity securities 
classified as available-for-sale.
    There are numerous factors to be considered in such an evaluation 
and their relative significance will vary from case to case. The staff 
believes that the following are only a few examples of the

[[Page 17770]]

factors which, individually or in combination, indicate that a decline 
in value of an equity security classified as available-for-sale is 
other than temporary and that a write-down of the carrying value is 
required:
    a. The length of the time and the extent to which the market value 
has been less than cost;
    b. The financial condition and near-term prospects of the issuer, 
including any specific events which may influence the operations of the 
issuer such as changes in technology that may impair the earnings 
potential of the investment or the discontinuance of a segment of the 
business that may affect the future earnings potential; or
    c. The intent and ability of the holder to retain its investment in 
the issuer for a period of time sufficient to allow for any anticipated 
recovery in market value.
    Unless evidence exists to support a realizable value equal to or 
greater than the carrying value of the investment in equity securities 
classified as available-for-sale, a write-down to fair value accounted 
for as a realized loss should be recorded. Such loss should be 
recognized in the determination of net income of the period in which it 
occurs and the written down value of the investment in the company 
becomes the new cost basis of the investment.

[FR Doc. E9-8801 Filed 4-16-09; 8:45 am]
BILLING CODE 0000-00-P