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Accounting for Financial Instruments: Post-Crisis Changes, Part 2 by ProQuest

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This column is the second of two that describe recent and forthcoming changes to financial-instrument accounting standards -- changes that carry significant implications for preparers, auditors, and users of financial statements. In contrast to the International Accounting Standard Board's (IASB) three-phase approach to replacing International Accounting Standard 39, Financial Instruments: Recognition and Measurement, the Financial Accounting Standard Board (FASB) is taking a one-shot approach to revising Accounting Standards Codification Topics 825, Financial Instruments, and 815, Derivatives and Hedging. In the first quarter of this year, the FASB will issue an ED of a proposed Accounting Standards Updates that will include all changes the FASB believes should be made to its financial instruments accounting standards. Both the FASB and the IASB agree that, for financial instruments measured at fair value, in some cases changes in fair value should be recognized in Net Income, while, in other cases, changes in fair value should be recognized in Other Comprehensive Income.

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									                                                                     FINANCIAL REPORTING
                                                                          Bruce Pounder, CMA, CFM, Editor




Accounting for Financial
Instruments: Post-Crisis
         Changes, Part 2
As the IASB and the FASB over-
haul their accounting standards
for financial instruments,
observers wonder whether IFRS         issued the first part of its revised    aligned with the final and pro-
and U.S. GAAP will converge or        financial-instruments standard as       posed guidance that the IASB has
diverge in this area.                 well as an exposure draft (ED) of       issued.
                                      an additional revision, the FASB           For example, both Boards agree
                                      hasn’t issued any final or proposed     that some financial instruments

T    his column is the second of
     two that describe recent and
forthcoming changes to financial-
                                      Accounting Standards Updates
                                      (ASUs) in conjunction with the
                                      financial-instruments project. But
                                                                              should be measured at fair value
                                                                              and others should be measured at
                                                                              amortized cost. But they haven’t
instrument accounting standards       the FASB hasn’t been idle and is        yet reached agreement on criteria
—changes that carry significant       quickly catching up to the IASB.        for determining which of those
implications for preparers, audi-        In the first quarter of this year,   two measurement attributes a
tors, and users of financial state-   the FASB will issue an ED of a          reporting entity should apply to a
ments. Last month, I focused on       proposed ASU that will include          particular financial instrument.
how the International Accounting      all changes the FASB believes              For its part, the FASB has tenta-
Standards Board (IASB) is chang-      should be made to its financial-        tively decided that nearly all finan-
ing International Financial Re-       instruments accounting standards.       cial instruments should be mea-
porting Standards (IFRS). This        The single ED will cover every          sured at fair value. Amortized cost
month, I’ll focus on how the U.S.     aspect of financial-instruments         could be used as a measurement
Financial Accounting Standards        accounting that the IASB will           attribute only in limited circum-
Board (FASB) is changing U.S.         eventually cover, including recog-      stances and only if an entity’s
Generally Accepted Accounting         nition, measurement, impairment,        management elects to use it in-
Principles (GAAP).                    and hedge accounting. Both              stead of fair value. One situation
                                      Boards expect to complete their         in which management would have
Different Approaches, Different       work on financial-instruments           the option to use amortized cost is
Timetables                            standards by the end of 2010.           in measuring a liability arising
In contrast to the IASB’s three-                                              from the reporting entity’s “own
phase approach to replacing Inter-    Focus on Fair Value                     debt”—i.e., debt instruments that
national Accounting Standard          Although the FASB hasn’t yet            the entity has issued for financing
(IAS) 39, “Financial Instrumen
								
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