The Financial Accounting Standards Board has issued an eagerly anticipated exposure draft of a proposed accounting standards update for financial instruments, a major sticking point in FASB’s efforts to converge U.S. GAAP with International Financial Reporting Standards.

Among other changes, the proposed update would seek to bring more transparency into financial statements by incorporating both amortized cost and fair value information about financial instruments held for collection or payment of cash flows. The proposal also aims to provide more timely information on anticipated credit losses to financial statement users by removing the “probable” threshold for recognizing 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 $1 billion 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.


“The changes we are proposing are aimed at improving the accounting for financial instruments in a number of ways,” said FASB Chairman Robert Herz in a statement. “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.”     

FASB is encouraging all interested parties to carefully review the proposal and provide their comments.

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

The International Accounting Standards Board has been taking a different approach with revising its standards for financial instruments, rolling out exposure drafts of the new IFRS 9 standard in multiple parts. The standards differ somewhat from FASB's, but the two boards have been coordinating closely and plan to take into account the public comments they receive to reach a converged standard later this year.


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.

The exposure drafts for both financial instruments and comprehensive income are available at www.fasb.org.

A briefing document about the financial instruments proposal entitled FASB In Focus is also available at the website, along with a “podcast” featuring an in-depth audio interview with FASB Chairman Robert Herz about financial instruments.  FASB will also be hosting a live webcast on the financial instruments proposal on June 30, 2010.

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