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FASB issues final standard on classification and measurement of financial instruments

  • FASB document (lt blue) Image

05 Jan 2016

The US Financial Accounting Standards Board (FASB) has issued ASU 2016-01, 'Recognition and Measurement of Financial Assets and Financial Liabilities', which contains limited amendments to the guidance in US GAAP on the classification and measurement of financial instruments. The new standard significantly revises an entity’s accounting related to (1) the classification and measurement of investments in equity securities and (2) the presentation of certain fair value changes for financial liabilities measured at fair value. It also amends certain disclosure requirements associated with the fair value of financial instruments.

The FASB had been working jointly with the IASB to converge their respective recognition and measurement models, but after performing a cost-benefit analysis, the FASB ultimately decided to make only limited changes to existing US GAAP. The amendments in the ASU do not reduce the differences between US GAAP and IFRSs. However, the ASU notes that it "achieves convergence" with IFRS 9 in several areas, but there are still differences in the detailed guidance:

  • Both require the portion of changes in the fair value of fair-value-option financial liabilities attributable to instrument-specific credit risk to be presented in OCI. However, the guidance about whether ever to reclassify fair value gains and losses from accumulated OCI to profit or loss differs between IFRS 9 and the ASU.
  • Both the new ASU and IFRS 9 require most equity investments (other than equity method investments and consolidated investments) to be measured at fair value with changes in fair value recognized in profit or loss. However, IFRS 9 has an option to recognize gains and losses on certain equity investments in OCI, which is not available under the ASU. Further, unlike the ASU, IFRS 9 does not have an elective practical expedient for measuring equity investments without a readily determinable fair value.
  • The IASB currently has a project to address the accounting for deferred tax assets on available-for-sale financial assets and have proposed a solution similar to the one in the ASU. Unlike US GAAP, however, the available-for-sale category is being eliminated under IFRSs by IFRS 9.

For details about the ASU's major changes and effective date, see the Heads Up newsletter and journal entry published by Deloitte (United States).

For more information, see the ASU, press release, and FASB in Focus newsletter on the FASB's website. 

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