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FASB Continues Making Headway on Classification and Measurement

Published on: 01 Jun 2011

Yesterday, the FASB discussed the classification and measurement of financial liabilities, tentatively deciding that a financial liability that meets the cash flow characteristics criterion1 would be measured at amortized cost except when either of the following business strategy conditions apply:

  • “The financial liability is held for transfer at acquisition, issuance, or inception, and the entity has the ability and means to transact at the financial liability’s fair value.”
  • “The financial liability is a short sale.”

A financial liability that meets either of the conditions above will be classified and measured at fair value through net income.

Editor’s Note: This decision represents a change from the FASB’s previous decision made at its March 2 meeting (see Deloitte’s March 3, 2011, journal entry), during which the Board tentatively concluded that an entity would apply cash flow characteristics and business strategy criteria that are similar to those applied to financial assets in determining the classification and measurement of financial liabilities. During its redeliberations yesterday, the Board refined the business strategy criterion for financial liabilities because the FASB believes this approach is more suitable in the application of the model to financial liabilities. Thus, the business strategy criterion for financial liabilities differs from that for financial assets.

For information about the Board’s previous tentative decisions on the classification and measurement of financial instruments, see Deloitte’s May 10, 2011, Heads Up newsletter and May 27, 2011, journal entry.


[1] See Deloitte’s May 5, 2011, journal entry for the Board’s most recent decision concerning this criterion.

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