VIEWS: 10 PAGES: 3 CATEGORY: Business & Economics POSTED ON: 7/14/2010
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.
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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