The Financial Accounting Standards Board may expand the use of mark-to-market accounting to the loans held by banks.


The measure is controversial, as banks have been pushing to lessen the use of mark-to-market accounting, especially for hard-to-price assets such as mortgage-backed securities. Earlier this week, the American Bankers Association criticized efforts by FASB and the International Accounting Standards Board to extend mark-to-market to loans, as well as the process followed by the two boards (see Bankers Object to Standards-Setting Process).

At a FASB meeting Thursday, Chairman Robert Herz said setting the mark-to-market standards for loans would be a long process involving roundtables and exposure drafts, and probably would not be in place before 2011. “We are taking a very measured and comprehensive approach to this complex issue,” he said, according to Reuters.

At the same meeting, FASB also discussed how an entity would present financial instruments in the basic financial statements. The board decided that financial instruments whose fair value changes are recognized in net income should be separately presented on the balance sheet from those financial instruments whose fair value changes are recognized in other comprehensive income.

For financial instruments whose fair value changes are recognized in net income, FASB decided that entities would be required to present the fair value amount on the balance sheet. In such cases, entities would not be prohibited from presenting on the balance sheet or disclosing in the notes the amortized cost amount and the fair value adjustment amount related to the instruments, in addition to the fair value amount.

For financial instruments whose fair value changes are recognized in other comprehensive income, FASB decided that entities would be required to present the cumulative credit losses as a separate line item on the face of the balance sheet for financial assets. The cumulative credit losses amount would be presented separately from the remainder of the fair value adjustment to reconcile the amortized cost amount to the fair value of the financial instrument. For an entity’s own debt for which the amortized cost option is elected, entities would be required to present the interest accruals and any realized gains or losses separately on the income statement.

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