Alcoa 2010 Annual Report Download - page 93

standards in the form of Statements, FASB Staff Positions, or Emerging Issues Task Force Abstracts; instead the FASB
will issue Accounting Standards Updates. Accounting Standards Updates will not be authoritative in their own right as
they will only serve to update the Codification. These changes and the Codification itself do not change GAAP. Other
than the manner in which new accounting guidance is referenced, the adoption of these changes had no impact on the
Consolidated Financial Statements.
Fair Value Accounting—On January 1, 2008, Alcoa adopted changes issued by the FASB to the use of fair value
accounting. These changes permit entities to choose to measure many financial instruments and certain other assets and
liabilities at fair value on an instrument-by-instrument basis (the fair value option) with changes in fair value reported
in earnings. Alcoa already records available-for-sale securities and derivative contracts and hedging activities at fair
value in accordance with existing guidance. The adoption of these changes had no impact on the Consolidated
Financial Statements, as management did not elect the fair value option for any other financial instruments or certain
other assets and liabilities.
On January 1, 2008, Alcoa adopted changes issued by the FASB to fair value accounting as it relates to financial assets
and financial liabilities and nonfinancial assets and nonfinancial liabilities that are recognized or disclosed at fair value
in the financial statements on at least an annual basis. On January 1, 2009, Alcoa adopted these same changes for all
other nonfinancial assets and nonfinancial liabilities (the difference in adoption dates was due to a change issued by the
FASB on February 12, 2008 delaying the effective date of the fair value accounting changes for certain nonfinancial
assets and nonfinancial liabilities). These changes define fair value, establish a framework for measuring fair value in
GAAP, and expand disclosures about fair value measurements. This guidance applies to other GAAP that require or
permit fair value measurements and is to be applied prospectively with limited exceptions. For financial assets and
financial liabilities, other than the required disclosures (see Note X), the adoption of these changes had no impact on
the Consolidated Financial Statements. For nonfinancial assets and nonfinancial liabilities, the adoption of these
changes had no impact on the Consolidated Financial Statements. These provisions will be applied at such time a fair
value measurement of a nonfinancial asset or nonfinancial liability is required, which may result in a fair value that is
materially different than would have been calculated prior to the adoption of these changes.
Effective January 1, 2008, Alcoa adopted a change issued by the FASB on February 14, 2008 to the scope of the
changes to fair value accounting that were adopted by Alcoa on January 1, 2008. This change resulted in the exclusion
of existing guidance that addresses fair value measurements for purposes of lease classification or measurement, except
for assets and liabilities related to leases assumed in a business combination that are required to be measured at fair
value (see Business Combinations and Consolidation Accounting below), from the changes to fair value accounting.
The adoption of this change had no impact on the Consolidated Financial Statements.
Effective September 30, 2008, Alcoa adopted changes issued by the FASB on October 10, 2008 for determining the
fair value of a financial asset when the market for that asset is not active. These changes clarify the application of fair
value accounting in a market that is not active and provides an example to illustrate key considerations in determining
the fair value of a financial asset when the market for that financial asset is not active. The adoption of these changes
had no impact on the Consolidated Financial Statements.
On June 30, 2009, Alcoa adopted changes issued by the FASB to fair value accounting. These changes provide
additional guidance for estimating fair value when the volume and level of activity for an asset or liability have
significantly decreased and includes guidance for identifying circumstances that indicate a transaction is not orderly.
This guidance is necessary to maintain the overall objective of fair value measurements, which is that fair value is the
price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date under current market conditions. The adoption of these changes had no impact on
the Consolidated Financial Statements.
On October 1, 2009, Alcoa adopted changes issued by the FASB to fair value accounting for liabilities. These changes
clarify existing guidance that in circumstances in which a quoted price in an active market for the identical liability is
not available, an entity is required to measure fair value using either a valuation technique that uses a quoted price of
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