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Financial Instruments: Comprehensive Project

Date recorded:

The staff introduced the topic by noting that the ultimate outcome of project was to have a consistent standard under both IFRS and US GAAP. It presented the Board with its recommendation on the project scope: 'To improve the decision usefulness of financial reporting for financial instruments for users.'

One IASB Board member noted this was an objective hard to object to. He continued that the staff has to identify the target staff is aiming at. Another Board member wanted to clarify that all aspects of the framework and its definition of decision usefulness is applied in assessing any proposals. It was further noted that the any improvement would have to result in simplification - some thought this would almost happen automatically.

The IASB chairman reminded participants that both boards made the commitment to develop improved guidance in months, not years. One IASB Board member noted that this meant the starting point was not a blank sheet of paper.

One of the project managers highlighted that the objective was to make the reporting of financial instruments more understandable for users.

Staff then turned to the criteria that would determine the appropriate measurement attribute. There seemed to be consensus around the table that at least two categories for measurement purposes were required: fair value (starting point) and 'something else' (obviously, amortised cost or a current measurement not based on an exit notion).

Board members emphasised that the dividing line between the categories was important and must be understandable.

Three possible approaches for categorisation were identified:

  • Characteristics of the instrument, particularly of the cash flows (variability - which would have to be defined)
  • Tradeability of the instrument
  • Management intent/business model

A majority of board members agreed that certain instruments, particularly derivatives, must continue to be carried at fair value.

The staff then presented its project design:

  • Objectives of project (discussed at this meeting)
  • Alternative measurement bases
  • Allocation of financial instruments into measurement categories
  • Impairment model (if amortised cost is identified as a measurement basis)
  • Reclassifications and a fair value option
  • Hedge accounting (decision to address in this project or potentially as a separate project)
  • Presentation, disclosures, effective date and transition

One IASB Board member remarked that the selection of any measurement attribute should also be assessed based on the presentation of the changes in value. He emphasised that some topics in the list are interrelated. A FASB Board member asked whether the staff intended to propose any form recognition of changes in values directly in other comprehensive income. The staff responded that it had no intentions at this point.

The IASB chairman then summarised the session:

  • The goal was to have two measurement attributes, but to consider a third one
  • Define this potential third measurement candidate appropriately
  • Define one impairment model
  • Derivatives should be measured at fair value (the chairman took a vote on this and 13 members of both boards agreed)
  • Analyse and assess the potential dividing lines for allocating instruments to the measurement categories (see above)

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