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Journal entry — Classification and measurement of financial instruments — FASB discusses measurement and presentation of own credit risk

Published on: Apr 24, 2014

At its meeting yesterday, the FASB tentatively decided that:

  • Changes in fair value attributable to instrument-specific credit risk on financial liabilities for which a fair value option has been elected would be recognized in other comprehensive income rather than in net income.
  • An entity would measure the portion of change in fair value attributable to instrument-specific credit risk as the excess of total change in fair value over the change in fair value “resulting from a change in a base market risk, such as a risk-free interest rate . . . . Alternatively, an entity may use another method that it considers to more faithfully represent the portion of the total change in fair value resulting from a change in instrument-specific credit risk.” In either case, the entity would be required to disclose the method it “used to determine the gains and losses attributable to instrument-specific credit risk and [to] apply the method consistently from period to period.”1
  • For derivative liabilities, any changes in fair value attributable to instrument-specific credit risk should continue to be presented in net income.

The Board also reaffirmed its April 4, 2014, tentative decision to retain the existing unconditional fair value option under ASC 825-10 and ASC 815-15-25-42 rather than restrict the fair value option to certain financial instruments as proposed in its February 2013 exposure draft.


1 Quoted text is from the meeting handout.

2 For titles of FASB Accounting Standards Codification (ASC) references, see Deloitte’s “Titles of Topics and Subtopics in the FASB Accounting Standards Codification.

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