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Financial Instruments - Comprehensive Project

Date recorded:

In the Memorandum of Understanding between the FASB and the IASB, the Boards agreed that one or more due process documents will be issued on financial instruments accounting. The IASB plans to issue a Discussion Paper Reducing Complexity in Reporting Financial Instruments in Q1/2008. This paper was discussed with members of the Financial Instruments Working Group (FIWG) on 17 January 2008.

The purpose of this session was:

  • To discuss the content of the staff draft of the IASB Invitation to Comment
  • To discuss the questions for respondents therein
  • To provide an oral summary of the FIWG discussions on the 17 January 2008.

The staff started with the summary of the FIWG discussions. Two proposals emerged from those discussions:

  • The focus of the paper should be less on fair value and more on the intermediate solutions to reduce complexity in financial reporting for financial instruments.
  • The discussion should be expanded to the problems resulting from the extended use of fair value, especially where markets are non existent or illiquid.

On the first issue, the staff said it will look into structure and language of the paper, as FIWG members had the impression that Board members had already decided that fair value is the ultimate measurement attribute. One Board member noted that the FASB seemed also to propose a change in the tone of the paper, but in the opposite direction (that is to propose more clearly fair value as measurement basis).

Also, the FIWG proposed to add questions on the following topics:

  • Presentation (including disaggregation) - especially, what users of financial statements want
  • Whether a single measurement attribute is desirable
  • Discussion on hedge accounting alternatives.

On the first point, the Board had a lengthy discussion whether this issue should be included. Supporters of its inclusion mentioned that if this is not included, the feedback on the Discussion Paper would probably be negative. Those board members who were not in favour of having references or questions on presentation in the Discussion Paper noted that this might distract readers from the scope of the document. One Board member proposed that there could be cross references to the sections on presentation in the Joint Working Group papers issued some years ago.

On the issue of hedge accounting, staff reported that FIWG members obviously do not want to abandon hedge accounting. The chairman proposed that one way forward could be to abandon hedge accounting but allow entities to explain the effects and put them in an economic context in the notes. Another Board member was concerned that constituents might want more deferral hedge accounting alternatives besides hedge accounting.

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