What must be dislosed?

As noted in the previous post, FAS 157 “expands disclosures [emphasis added] about fair value measurements.” So, what exactly must be disclosed under FAS 157 for environmental liabilities?

Here is what FAS 157 requires in disclosure for environmental liabilities such as asset retirement obligations, loss contingencies, and asset impairments—liabilities that are “measured at fair value on a nonrecurring basis” after initial recognition:

• Amount of the fair value measurement, in separate amounts for each major category, e.g., asset retirement obligations, loss contingencies, asset impairments.
• Reason for the measurement, e.g., asset retirement obligations under FAS 143 – FIN 47, contingent liabilities (e.g., loss contingencies) under FAS 141R.
• Level number for the measurement within the fair value hierarchy, which is expected to be Level 3 for environmental liabilities.
• Description of inputs and information used to develop inputs for the fair value measurement, e.g., labor, overhead, and equipment costs from similar work.
• Identification of valuation techniques used in the measurement, e.g., expected cash flows method and credit-adjusted risk-free discount rate for expected present value technique.

What confidence do we have that these disclosure requirements apply for those environmental liabilities? In the FASB staff position paper FSP FAS 157-2, FASB identifies asset retirement obligations as a nonrecurring nonfinancial liability. In paragraph A25 of FAS 157, FASB cites asset retirement obligations as an example of Level 3 in the fair value hierarchy. In paragraph 33 of FAS 157, FASB indicates impaired assets as an example of liabilities measured at fair value on a nonrecurring basis. FASB has loss contingencies set for measurement at fair value for mergers and acquisitions when FAS 141R becomes effective in 2009. [See the February 11, 2008 posting on "Planning for FAS 141R."] These give us a pretty good sense of how those types of environmental liabilities are viewed by FASB for fair value measurement and disclosure.

The previous post dealt with when the FAS 157 expanded disclosure is required.