After a summer of discussions, the Financial Accounting Standards Board is expected to release as many as 10 documents by the end of the year or early in 2008.Susan Bielstein, FASB director of major projects and technical activities, said that the board had shown strong progress this year, especially with the completion of a business combination standard that it wrote jointly with the International Accounting Standards Board. It was the first joint standard the boards have produced, and it's expected to be released in mid-October. "It was a real milestone in the convergence process," Bielstein said.
Convergence might be seen as the theme of the year, with several projects working in that direction.
The boards are working together on a common conceptual framework, the first pillar of which - identical proposals on the objectives and qualitative characteristics of financial reporting - should be released by the end of the year. The boards may also soon issue a preliminary views document on the reporting entity, a concept that their frameworks do not currently deal with.
The two boards are also about to produce a preliminary views document that may be issued as soon as November. FASB has tentatively opted for a narrow view of equity, the so-called "ownership" approach to distinguishing assets and liabilities from equity. It identifies the owners of an entity and the instruments that may affect the net assets available to those owners. The PV document will also present alternative approaches known as "settlement" and "reassessed expected outcome."
Bielstein said that the ownership approach would greatly simplify accounting. "This project should achieve a couple of our objectives," she said. "It will result in better reporting and simplicity. It's far simpler to apply. It may get rid of something like 65 pieces of generally accepted accounting principles."
The board also hopes to issue a PV on financial statement presentation. This is a joint FASB/IASB effort to produce a standard for presentation of classification and display of line items and the aggregation of line items into subtotals and totals.
Bielstein said that the projects on liability/equity and presentation are crucial "enablers" that must be established before the boards can continue work on their projects on financial instruments. The boards are working toward requiring all financial instruments to be measured at fair value, with realized and unrealized gains and losses recognized in the period in which they occur; simplifying or eliminating the need for special hedge accounting; and developing a new standard on the derecognition of instruments. Once the liability/equity and presentation standards are out, FASB intends to issue a due process document on the broader financial instruments project.
"We hope that by establishing the principles [of] separating operations from financing and separating out the equity capital from the financial capital, there will be a lot more neutral, transparent information about the entity's operating activities separate from its financing activities," Bielstein said.
The two boards are sharing staff and resources in an effort to converge FASB Statement 109 and IASB International Accounting Statement 12, both on income taxes. Though both statements are based on the same principles, differences in guidance have resulted in non-comparability among American and foreign financial statements.
FASB has tentatively decided to exempt accounting for certain investment taxes, discounting of deferred taxes, and income taxes in interim periods, all of which are outside the scope of Statement 109. Both boards are also exempting their differences in leveraged leases and share-based payments.
The boards deliberate separately, but are aiming to issue similar exposure drafts by year's end. They would then consider comments on each other's documents and try to produce nearly identical final statements.
A final document on derivatives disclosures, improving Statement 133, Accounting for Derivative Instruments and Hedging Activities, should be issued as soon as the board puts the finishing touches on an exposure draft that was issued in December. The guidance should help the users of financial statements understand how and why an entity uses derivatives instruments, how they and related hedged items are accounted for, and how they affect financial position, results of operations and cash flow.
The board is also proposing clarifications of Statement 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. An exposure draft on transfers of financial assets will address practice issues related to qualifying special-purpose entities. The board may also issue final implementation guidance on when a transferor and a transferee might evaluate the accounting for a transfer of a financial asset separately from a repurchase financing.
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