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FASB issues proposal for disclosing liquidity and interest rate risk

  • FASB (US Financial Accounting Standards Board) Image

Jun 29, 2012

On June 27, 2012, the FASB issued proposed amendments relating to disclosures about liquidity risk and interest rate risk. The proposals would require a reporting entity to adopt new qualitative and quantitative disclosures about liquidity and interest rate risk. Under the proposals, all entities must provide disclosures about liquidity risk, and “financial institutions” would also provide disclosures about interest rate risk.

Public entities would be required to provide the proposed disclosures for interim and annual periods; however, nonpublic entities would only be required to provide disclosures for annual periods. The FASB believes that the proposed amendments would address stakeholder concerns that certain inherent risks of financial instruments and their effect on an entity’s broader risk exposures would not be fully reflected in the measurement model for such instruments, and that the breadth of such risks could only be communicated through supplemental disclosure. The proposals do not specify an effective date; instead, the effective date of such requirements will be established during redeliberations. Comments on the proposal must be submitted to the FASB no later than September 25, 2012. The proposals, if finalized, would move the U.S. GAAP requirements closer to the existing requirements under IFRS 7. However, differences would remain, including FASB proposals that would require disclosures about issuances of time deposits and available liquid funds that are not required under IFRS, as well as the following:

  • IFRS 7 requires that all entities (not just financial institutions) disclose a maturity analysis of their nonderivative and derivative financial liabilities that is segregated by time intervals and based on the earliest period in which a reporting entity could be required to pay the liability (not expected maturity).
  • IFRS 7 requires that an entity (not just a financial institution) disclose a sensitivity analysis for each type of market risk (e.g. interest rate risk) to which it is exposed at the end of a reporting period, and its impacts on net income and shareholders’ equity to changes.
  • Unlike IFRS 7, in which the amounts by which interest rates change in the analysis are based on an entity’s judgment, the FASB proposals would prescribe the amounts by which interest rates change when performing the sensitivity analysis.

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