The Financial Accounting Standards Board released a statement aimed at simplifying the accounting for servicing assets and liabilities, such as those common to mortgage securitization activities.

The statement, No. 156 "Accounting for Servicing of Financial Assets," is an amendment to Financial Accounting Standard No. 140. The board said that the changes will tackle the recognition and measurement of separately recognized servicing assets and liabilities -- providing an approach the board hopes could simplify efforts to obtain offset accounting, similar to hedging.

The standard also:

  • Clarifies when an obligation to service financial assets should be separately recognized as a servicing asset or a servicing liability;
  • Requires that a separately recognized servicing asset or servicing liability be initially measured at fair value; and,
  • Permits an entity with a separately recognized servicing asset or servicing liability to choose either the amortization or fair value method for future measurement.

The new statement also permits a servicer using derivative financial instruments to offset risks by using fair value accounting.The statement is effective for all separately recognized servicing assets and liabilities acquired or issued after the beginning of an entity's fiscal year that begins after September 15. Early adoption of the rule is allowed.

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