Financial Instruments — FASB to Issue Exposure Draft on Liquidity and Interest Rate Risk Disclosures

Published on: 13 Apr 2012

At its meeting on Wednesday, the FASB unanimously voted to grant its staff permission to draft, for a vote by written ballot, a proposed ASU on liquidity and interest rate risk disclosures, a portion of the Board’s larger project on accounting for financial instruments. This meeting marked the first time since September 2011 that the Board has addressed this topic.

Editor’s Note: At its September 2011 meeting, the Board tentatively decided to require all entities (financial and nonfinancial institutions, both public and nonpublic) to provide disclosures about liquidity risk and to require financial institutions to provide disclosures about interest rate risk. The proposed disclosures would be required for interim and annual periods, although nonpublic, nonfinancial entities would only be required to provide the liquidity risk disclosures for annual reporting periods. The specific disclosures agreed upon during that meeting are discussed in further detail in Deloitte’s September 9, 2011, Accounting Journal Entry.

The Board agreed that it would only develop disclosure requirements related to liquidity risk and interest rate risk but not any additional disclosure requirements that were deferred as part of the project on risks and uncertainties and the liquidation basis of accounting (formerly going concern). The FASB staff had suggested that it may be possible to improve overall disclosure quality by harmonizing qualitative going-concern disclosures with the agreed-upon disclosures about liquidity risk and interest rate risk.

Editor’s Note: As an alternative, the FASB staff suggested, and some Board members agreed, that the FASB may be able to help improve going-concern information available to investors by collaborating with the SEC, PCAOB, and other auditing standard setters. While no formal commitments were made, the FASB chairman suggested that enhancing disclosures on going concern, and creating a better link between an entity’s operational information in MD&A (for public companies) and the new liquidity disclosures, could be proposed as a future topic of discussion at the SEC’s Financial Reporting Series roundtables.1

The Board also tentatively decided that the proposed ASU would not require comparative disclosures in the year of transition; however, such information would be required on an ongoing basis. The proposed ASU will not include an effective date and will be exposed for a 90-day comment period.

Editor’s Note: Some Board members indicated their preference for a near-term effective date, which ultimately factored into the tentative decision not to require comparative disclosures in the year of transition (i.e., in an effort to ease constituents’ implementation burden). Further, in discussing the length of the comment period, the Board expressed its desire that the final standard be effective for annual periods ending after December 15, 2012 (i.e., the December 31, 2012, financial statements for calendar-year-end entities).




[1] The SEC’s Web site states that these are “roundtable sessions to assist in the proactive identification of risks related to, and areas for potential improvements in, financial information filed with the SEC.”

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