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Financial Instruments - Comprehensive Project

Date recorded:

The Board continued its discussions on financial instruments issues.

Impairment disclosures

The first issue discussed were enhanced disclosures on impairments. The FASB staff informed the Board that the FASB has agreed to propose an approach to disclose incurred losses on certain instruments that are fair valued.

Under the FASB proposal disclosure of the following for all investments in debt instruments other than those classified as at fair value through profit or loss would be required:

  1. pre-tax profit or loss as though the instruments had been:
    • a. classified as at fair value through profit or loss; and
    • b. accounted for at amortised cost.
  2. the following amounts in a way that permits a comparison:
    • a. the carrying amount in the statement of financial position;
    • b. fair value; and
    • c. amortised cost.

This disclosure would have to be provided in tabular format as follows:

Investments in debt instruments (other than those classified as at fair value through profit or loss)





If all investments in debt instruments (other than those classified as at fair value through profit or loss)

Pre-tax profit or loss CU million



Classified as financial assets at fair value through profit or loss




Accounted for at amortised cost






31 Dec 20X1


Investments in debt instruments classified as:

Carrying amount in the statement of financial position CU million

Fair value CU million

Amortised cost (a) CU million

Loans and receivables




Held-to-maturity investments




Available-for-sale financial assets












(a) Amortised cost as defined in paragraph 9 of IAS 39

The Board discussed certain aspects of the table, the information it was aimed to provide and possible improvements. Some Board members wanted a reconciliation from pro forma to reported profit or loss. The staff responded that they will pick up all proposal by the Board. Some were concerned over the practicability of such a reconciliation and if such a reconciliation was proposed then this question must be asked.

In response to a question by the Board, the FASB staff informed the Board that it planned to issue its exposure draft before Christmas with an effective date of 31 December 2008 with no comparatives to be reported. The Board agreed to adopt this approach.

One Board member asked whether the US proposals to eliminate the guidance on impairment of certain beneficial instruments and transfer it to the general guidance in SFAS 115 would create differences. It was highlighted that, while differences remain, it moves US GAAP closer to IFRS with this 'rationalisation'.

The FASB staff also informed the Board that the plan to issue an exposure draft to clarify the accounting for synthetic CDO instruments, which would also align US GAAP and IFRS.

Fair value option

The staff noted that participants at the roundtables on the global financial crisis asked the Board to review the guidance on the fair value option. Topics of concerns were:

  • scope of the FVO;
  • eligibility requirements for the FVO; and
  • ability to transfer out of the FVO category.

The staff explained that participants wanted to converge the guidance with US GAAP. The staff continued that it had approached constituents that were involved in the development of the revised fair value option. The staff recommended to look at the FVO option as a package, possibly as part of the comprehensive review on financial instruments reporting, as any piecemeal amendments would run the danger of decreasing investors' confidence. The chairman gave an update on the views by the constituents approached, particularly the ECB and the Basel Committee.

The Board agreed.

The staff raised an additional issue by one of the participants that the 'different' definitions of the 'held for trading' category under IFRS and US GAAP would lead to divergence. It was seen as to allow reclassification out of fair value measurement more frequently under US GAAP. The Board was asked whether to provide more guidance. The Board agreed with the staff recommendation not to provide such additional guidance.

Accounting for CDOs

The Board agreed not to address the accounting for embedded derivatives in certain CDOs in the light of the FASB's upcoming proposal which would align the guidance in US GAAP with IFRS.

Correction list for hyphenation

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