FASB proposes tweaks to financial instruments standards

The Financial Accounting Standards Board posted a proposed accounting standards update Monday that would make narrow improvements to its standards on credit losses, hedging, and recognition and measurement of financial instruments.

FASB finalized some earlier tweaks to the current expect credit losses, or CECL, standard last week (see FASB tweaks credit losses standard). The new proposal aims to make further changes in the three financial instruments standards, which FASB has tried to converge with the International Accounting Standards Board’s own International Financial Reporting Standards, although the standards under U.S. GAAP and IFRS still remain far apart.

One of the proposed changes would allow an entity to measure the allowance for credit losses on accrued interest receivable balances separately from other components of the amortized cost basis of associated financial assets and net investments in leases. Another change would permit an entity to make an accounting policy election to write off accrued interest amounts by either reversing interest income or adjusting the allowance for credit losses. Entities would also be able to make an accounting policy election not to measure an allowance for credit losses on accrued interest receivable amounts if an entity writes off the uncollectible accrued interest.

In the hedging area, an entity would be able to designate and measure the change in fair value of a hedged item attributable to both interest rate risk and foreign exchange risk in a partial-term fair value hedge. The proposed change would also clarify that one or more separately designated partial-term fair value hedging relationships of a single financial instrument could be outstanding at the same time.

Some of the proposals come from suggestions from a Transition Resource Group that FASB has set up for the credit loss standard. FASB is asking for comments on the proposed update by Dec. 19, 2018.

"Since issuing the financial instruments standards, the FASB staff has been working with stakeholders to obtain feedback and address questions on the guidance," FASB Chairman Russell G. Golden said in a statement. “Through these interactions, the FASB identified areas of the guidance that require clarification and correction. The amendments in the proposed ASU would address those areas.”

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