FASB Board Decisions: Fair Value Election for Commodity Inventories at Banks

FASB May 27, 2026 Board Meeting: Commodity Inventories and a New MSR Project

FASB's May 27, 2026 board meeting marked the conclusion of key deliberations on the Accounting for Commodities project, moving it closer to a formal exposure draft. The board also expanded its technical agenda with a new project on mortgage servicing rights.

Commodity Inventories: Fair Value Election for Topic 942 Entities

The most significant outcome of the meeting is the board's decision to limit the fair value measurement alternative to entities within the scope of ASC Topic 942, Financial Services — Depository and Lending. This includes banks, thrifts, credit unions, and their subsidiaries — both for consolidated financial statements and for standalone subsidiary statements.

The board made four core decisions on scope and measurement:

• No commodity definition required. Tangible commodity inventories held by in-scope entities fall within the amendments without needing a formal definition of "commodity."
• No activity-based scope filter. There are no additional criteria based on the nature of the entity's commodity activities.
• Policy election, not a requirement. Entities may elect, but are not required, to measure tangible commodity inventories at fair value.
• Election by commodity type. The accounting policy election can be made at the level of a specific type of tangible commodity — for example, gold or crude oil — rather than on an all-or-nothing basis.

This approach gives entities flexibility to apply fair value measurement where it is most operational or relevant, without requiring a wholesale change in inventory accounting.

Required Disclosures

For commodity inventories measured under the fair value election, the board decided that entities must disclose:

1. The types of tangible commodities for which the fair value election has been made. 2. Management's reasons for electing fair value measurement for each type of commodity. 3. The carrying amount of those commodities, along with all applicable disclosures required by ASC 820, Fair Value Measurement — including level of the fair value hierarchy and valuation techniques.

The ASC 820 disclosure requirement is particularly significant: fair value measurements for commodities often fall in Level 2 or Level 3 of the hierarchy, triggering detailed quantitative and qualitative disclosure obligations.

Transition: Cumulative-Effect Adjustment

The board decided on a modified retrospective transition: entities apply the amendments as a cumulative-effect adjustment to retained earnings (or equivalent equity components) as of the beginning of the annual reporting period of adoption — not retrospectively to prior periods.

Required transition disclosures mirror those under ASC 250, Accounting Changes and Error Corrections: the nature of the change, the reason for it, and the amount of the cumulative effect on retained earnings or equity as of the adoption date, along with a description of affected line items.

Early adoption will be permitted in any interim period after issuance of a final Update, effective as of the beginning of the annual reporting period that includes that interim period.

What Happens Next

The board directed staff to draft a proposed Accounting Standards Update for vote by written ballot, with a 45-day public comment period once issued. Constituents — particularly banks and financial institutions with commodity holdings — should monitor the FASB website for the exposure draft and prepare to comment.

New Project: Mortgage Servicing Rights Recapture

In a separate decision, FASB added a project to its technical agenda to address the value attributable to mortgage servicing rights (MSR) recapture. The project will examine whether and how servicers should reflect recapture economics — the likelihood that a borrower whose loan is prepaid will originate a new loan with the same servicer — in the measurement of MSR assets. Further details on scope and approach are expected at a future board meeting.

Practical Implications

For Topic 942 entities holding tangible commodity inventories (for example, precious metals, energy commodities, or agricultural products), the proposed amendments offer a meaningful accounting policy option. The fair value approach aligns the carrying amount with market prices, reducing volatility mismatches that can arise when commodity inventories are held alongside derivatives that already reflect current market values. Entities should assess whether the election would improve financial statement representational faithfulness for their specific commodity portfolios before the comment period closes.