Financial Instruments – Long-term Objectives
The Boards discussed their long-term objective to eliminate or simplify hedge accounting in the broader context of the FASB/IASB Memorandum of Understanding's agreed objective to issue one or more due process documents relating to accounting for financial instruments by 1 January 2008. The Boards did not discuss the paper issued to Observers as Agenda Paper 1 for the joint meeting.
A FASB Member observed that the long-term objective of the Boards was the elimination of the current mixed attribute model for financial instruments. Therefore, the due process document should address why one basis is better than mixed attributes and why, in the Boards' view, fair value for financial instruments was the better answer for users, preparers and auditors. Members from both Boards commented that the due process document should address the measurement attribute rather than simply the calculation that is the result of that determination; that the document must articulate clearly what a financial instrument is and to which portions of a financial instrument (if any) a particular calculation might be applied. Board members stressed that this document would not seek to advocate (or otherwise) the extension of fair value measurement to assets and liabilities that are not 'financial instruments' as defined. In addition, the due process document would need to address both decision usefulness (relevance, reliability, and neutrality) and complexity issues.
The Boards discussed the shape and content of the due process document. The character of that document (that is, whether a Staff Paper or a Preliminary Views Document) could not be determined until the staff had prepared a outline and an estimate of the amount of Board involvement required. The amount of Board time necessary would also be a product of the amount of 'new thinking' vs synthesis of existing work in the document. Board members, especially IASB Members, stressed that a Preliminary Views Document would receive more and better attention from constituents and thus a higher-quality response.
The IASB and the FASB agreed to commit their staff to the next stage of 'the effort' (this was not an Agenda Decision). One FASB Member did not support this because the staff proposal was not sufficiently focused to enable him to make a properly considered decision.
The next stage is that the IASB and FASB staff will develop an outline of the due process document together with their assessment of Board time and involvement necessary if the document were to be released by 1 January 2008.