FASB Issues Exposure Draft on Accounting for Financial Instruments

The Financial Accounting Standards Board (FASB) has issued an exposure draft (ED) of a proposed accounting standards update (ASU) intended to improve accounting for financial instruments. Among other changes, the proposed ASU would seek to bring more transparency into financial statements by incorporating both amortised cost and fair value information about financial instruments held for collection or payment of cash flows.

The proposal also aims at providing more timely information on anticipated credit losses to financial statement users by removing the ‘probable’ threshold for recognising credit losses. It seeks to better portray the results of asset-liability management activities at financial institutions. In the proposal, non-public entities with less than US$1bn in total consolidated assets would be allowed a four-year deferral beyond the effective date from certain requirements relating to loans and core deposits.

Other potential improvements addressed by the ASU include a single credit impairment model for both loans and debt securities. The criteria for hedge accounting would be simplified in order to improve the consistency in the reporting of the economic impacts of hedging activities.

FASB chairman, Robert Herz, stated: “The changes we are proposing are aimed at improving the accounting for financial instruments in a number of ways. The proposal would impact the reporting by financial institutions and all other entities that have financial instruments as the goal of greater transparency in financial statements is pursued. We encourage all interested parties to carefully review the proposal and provide us with your comments. Through its due process, the FASB will ensure that it obtains and considers a broad range of input on this important proposal.”

The comment period for the proposed ASU extends through 30 September 2010. The FASB will also hold additional public roundtable meetings immediately following in October to collect further input. Details will be announced later.

The FASB also issued for public comment a separate, but integral proposed ASU that would require total comprehensive income and its components in two parts – net income and other comprehensive income – be displayed in a continuous statement of financial performance.


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