The American Institute of CPAs has sent the Financial Accounting Standards Board a letter criticizing FASBs proposal to account for nearly all financial instruments at fair value.
Echoing an earlier letter from December 2009, the AICPAs Financial Reporting Executive Committee commented on FASBs exposure draft of a proposed Accounting Standards Update for Accounting for Financial Instruments and Revisions to the Accounting for Derivative Instruments and Hedging Activities.
In the new letter, the AICPA sided more with the International Accounting Standards Boards approach to accounting for long-term financial instruments such as loans and deposits using amortized cost rather than fair value. However, the AICPA also objected to some aspects of the IASBs approach, particularly its classification and measurement model.
We support a mixed attribute model for financial instruments over the fair-value-for-almost-all-financial-instruments approach proposed by the FASB, said the AICPA FinREC letter. Through the utilization of fair value and amortized cost, the mixed attribute model allows the measurement and reporting of financial instruments to reflect the way these instruments are actually managed.
The AICPA added that FASBs credit impairment model was impracticable and would be extremely difficult to implement as it mixes together interest income and the allowance for credit losses. The AICPA pointed out that the risks are managed separately and users might not find this presentation useful in analyzing a reporting entitys results of operations.
The AICPA said the FASB exposure draft could set back the convergence effort. We do not support the proposed ED overall because it fails to achieve convergence on fundamental issues in a very significant area of GAAP, said the letter. Without convergence, financial statements of U.S. companies reporting under U.S. GAAP and foreign companies reporting under IFRS would not be comparable. Additionally, when or if the SEC sets a date for the adoption of IFRS by U.S. registrants, we are very concerned that U.S. GAAP registrants will be required to implement significant changes in U.S. accounting standards for financial instruments that are not convergent with IFRS and shortly thereafter be required to undertake a second significant implementation effort when adopting IFRS. We encourage the FASB and IASB to work together on the financial instruments standard and reconcile the differences in their models.
The two boards have said they issued differing proposals on financial instruments, but planned to take into account the comments they receive before they issue a final converged standard.
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