The American Institute of CPAs’ Financial Reporting Executive Committee, or FinREC, sent a letter to the Financial Accounting Standards Board raising issues with a proposed Accounting Standards Update, Financial Instruments (Topic 825), Disclosures about Liquidity Risk and Interest Rate Risk.
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The ASU is aimed at requiring companies to provide better disclosures of their risks in these areas (see “FASB Proposes New Rules for Disclosing Liquidity and Interest Rate Risks”), but FinREC suggests in its letter that the proposed disclosures “are static … they provide a point-in-time picture of a company’s financial assets and liabilities and how they would run off in future periods using unrealistic assumptions.” It also warned that the proposed ASU would be expensive to implement, and burdensome, particularly for smaller financial institutions.
The committee recommended that FASB:
• Not issue the ASU, but rather address the issues in its overarching “going concern” framework project;
• Engage the Securities and Exchange Commission in making any necessary enhancements regarding liquidity and interest rate risk disclosure in Management’s Discussion & Analysis; and,
• Engage the newly created Private Company Council to see whether private companies should fall within the scope of the project.
Recognizing that FASB might not take its advice to abandon the proposed ASU, FinREC also included some suggested improvements to it.