The Financial Accounting Standards Board has voted to propose changes to a derivatives rule issued earlier this year affecting the financial statements of asset-backed and mortgage-backed securities investors.The proposal would affect FASB Statement No. 155, Accounting for Certain Hybrid Financial Instruments, and allow companies not to account for embedded derivatives that are associated with prepayment risks. Community banks, insurance companies and others may be exempted from having to recognize interest-rate-driven gains and losses on their income statements. Many of those groups had said that without such an exemption, their earnings might be more volatile.

FASB issued Statement No. 133, Accounting for Derivatives Instruments and Hedging Activities, in February, which provided extra guidance as to when mortgage-backed securities may or may not be required to be accounted for. The change took effect for companies' first fiscal year after Sept. 15.

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