2009-11-20 The Fair Value Hierarchy Disclosures – Understanding and Applying Section 3862

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This Newsletter contains a memorandum which provides guidance on understanding and applying the requirements in amended CICA Section 3862.

In 2009 the Accounting Standards Board (“AcSB”) amended CICA Handbook Section 3862, Financial Instruments – Disclosures (“Section 3862”), to require enhanced disclosures about the relative reliability of the data, or “inputs”, that an entity uses in measuring the fair values of its financial instruments. The new requirements are effective for annual financial statements for fiscal years ending after September 30, 2009. For an entity with a calendar year-end this means that the disclosures will be required in its December 31, 2009 annual financial statements.

Understanding and applying the requirements can be challenging. In the attached memorandum, we briefly:

• Explain the background to the amendments
• Review and comment on the requirements
• Give an illustrative example of their application
• Outline steps for preparing the disclosures
• Identify and discuss the key drivers to the disclosures
• Consider the classification of more common types of instruments subject to the requirements, such as quoted equity investments, investments in bonds, interest rate and cross currency swaps and forward exchange contracts
• Discuss the transition requirements