FASB Initiates Redeliberations Related to Its Project on Accounting for Financial Instruments

Published on: 27 Oct 2010

Today, the FASB held its first meeting to outline a project plan to initiate redeliberations on the exposure draft (ED) it issued as part of its project on accounting for financial instruments. At the meeting, the FASB staff summarized for the Board the outreach performed and feedback received on the classification and measurement portion of the ED. The staff acknowledged that it is still reading and analyzing the “entire population of comment letters received” and noted that it will bring back to the Board a complete analysis of the comment letters at a later date. Nevertheless, on the basis of the feedback received, the Board agreed with the staff’s recommendation to revisit, beginning in December 2010, the following issues related to the ED’s classification and measurement portion: (1) initial measurement, (2) subsequent measurement, and (3) equity method of accounting.

With respect to initial measurement, the Board will redeliberate (1) whether there should be symmetry between classification categories (i.e., whether transaction price or fair value should be the initial measurement for all classification categories), (2) the ED’s guidance related to significant differences between fair value and transaction price, and (3) for each classification category, whether transaction costs should be expensed or capitalized. The Board also noted that it would prefer to first address both the classification and the measurement of financial assets and then consider the implications on financial liabilities.

With regard to subsequent measurement, the Board will redeliberate (1) classification and measurement categories for financial assets and financial liabilities, (2) loans, (3) debt securities, (4) equity investments (excluding equity method of accounting), (5) core deposit liabilities, (6) other financial liabilities, (7) the fair value option, and (8) hybrid financial instruments. In addition, the Board will redeliberate the ED’s proposed accounting for equity method investments.

The Board acknowledged that redeliberations of the ED’s classification and measurement portion will not be conducted jointly with the IASB; however, after the Board has identified a tentative new model for classification and measurement of financial assets and financial liabilities, it will discuss such model with the IASB in a joint meeting to address convergence. In addition, with regard to impairment and interest recognition, the Board noted that it plans to address these areas jointly with the IASB and that three joint board meetings are scheduled for early November.

Although the Board did not address hedge accounting at the meeting, it is expected to outline a project plan on hedge accounting at a later date.

Accounting Journal Entries Image

Related Topics

Correction list for hyphenation

These words serve as exceptions. Once entered, they are only hyphenated at the specified hyphenation points. Each word should be on a separate line.