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Appeal of Early Adoption of the Statement of Financial Accounting Standards No. 159 - Summary 1 (First Quarter 2008)


A community bank appealed to the Ombudsman the decision by the supervisory office that its early adoption of the Financial Accounting Standards Board's "Statement of Financial Accounting Standards No. 159-The Fair Value Option for Financial Assets and Financial Liabilities" (February 2007) (FASB Statement No. 159) was not substantive. The appeal requested the Ombudsman to grant a stay of the supervisory office directive to reverse the retained earnings transaction and amend any affected call report submissions.


The appeal states that the board demonstrated intent to comply with FASB Statement No. 159 based on the rules known at the time. The board argues that:

  • FASB Statement No.159 allows the fair value option to be applied on an instrument-by-instrument basis
  • FASB Statement No. 159 does not require that the proceeds from the sale of securities be immediately reinvested in a like amount, and
  • The fair value option was applied to new investments.

The supervisory office concluded that the board applied fair value option only to below-market-value securities and used the proceeds from the sale of those securities to meet liquidity needs. The fair value option was subsequently applied on a limited volume of new investments. The totality of these actions indicated that early adoption of FASB Statement No.159 was done to achieve an accounting result, which is not the intention of the statement.

Additionally, the bank's fair value option policy did not include a comprehensive strategy for the consistent application of FASB Statement No. 159; therefore, it did not support the bank's intent to use fair value option on an on-going basis. Consequently, the board's actions were inconsistent with two primary principles in FASB Statement No. 159, which are (1) promoting financial statement transparency and (2) using the fair value option on an on-going basis.


The Ombudsman conducted a comprehensive review of the information submitted by bank management and the supervisory office. In addition to reviewing FASB Statement No. 159 and available OCC guidance, the Ombudsman also reviewed the American Institute of Certified Public Accountants' Center for Audit Quality Alert #2007-14 (April 17, 2007), regarding questions raised about the early adoption of FASB Statement No. 159.

The Ombudsman concluded that the totality of the board's actions did not reflect the intent to use fair value measurement of financial instruments in the near- or long-term. Therefore, the supervisory office's determination of non-substantive adoption of FASB Statement No. 159 was appropriate. The stay granted at the initiation of the appeal was lifted, and the board was advised to contact their supervisory office regarding the reversal of the transaction and amendment of any necessary call report submissions.

The Ombudsman's conclusion was based on the specific facts and circumstances of this particular appeal and was not intended to be a broad conclusion regarding all cases involving early adoption of FASB Statement No. 159.