Financial Instruments ED Coming, Decidedly Mark-To-Market

Aug 24th 2009
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FASB's Exposure Draft on a proposed standard on Financial Instruments - which FASB previously announced would propose that all financial instruments to be carried at fair value - is expected to be issued by year-end, or early next year, FASB Chairman Robert Herz said in opening remarks at FASB's August 13 board meeting. He added that a final standard on Financial Instruments - Recognition and Measurement (FIRM) is currently expected to be issued in 2010, and, "Based upon our current timetable, I could not see [a final standard on financial instruments] being effective any earlier than 2011." [See FEI summary of Herz' opening remarks http://www.financialexecutives.org/eweb/dynamicpage.aspx?site=_fei&webco... .]

Herz noted he has received several phone calls from constituents who were under the impression that today’s board meeting would be the last public board meeting at which the FIRM project would be deliberated prior to issuing an Exposure Draft. He emphasized that is not the case, and that FASB plans to hold several additional board meetings on the FIRM project prior to releasing an ED.

He provided an extensive discussion of due process in his opening remarks (perhaps, in part, as a result of recent comment letters filed by the American Bankers Association, detailed further below), including, "I expect that we will have many more public meetings to discuss a whole host of issues that we need to address in developing a comprehensive proposal," before an ED is issued. "Once we receive comments on our ED, we identify all the key issues that come out of those comments, all the other input that we receive, then we go thru a redeliberation process [in] a series of board meetings." He added, "experience indicates changes often are made [in the final standard] based on the comments and input that we get. And, only after we have gone thru that kind of very extensive and thorough public due process, would we issue a final standard."

Herz also noted that several public roundtables on financial instruments are set to take place in September, [Sept. 3 (Tokyo), Sept. 10 (London), Sept. 14 (Norwalk, CT)], jointly sponsored by FASB and the International Accounting Standards Board.

FASB's Assistant Director of Technical Activities, Kevin Stoklosa added that the staff plans to post a detailed project plan on the financial instruments project ‘soon’ (supplementing material currently posted), which will address the project plan on FIRM, impairment, and hedging. Additionally, staff plan to post a comparison between FASB’s proposed model for financial instruments, and the IASB’s proposed model.

All Financial Instruments To Be Carried At Fair Value
As recapped in the August 13 FASB board handout, FASB decided at its July 15 board meeting that: “All financial instruments will be presented on the balance sheet at fair value with changes in value recognized in net income or other comprehensive income with an optional exception for own debt in certain circumstances, which will be measured at amortized cost.” Further details are in the board handout.

At the August 13 board meeting, FASB discussed: (1) Balance sheet presentation for financial instruments whose changes in fair value are recognized in net income, (2) Presentation within net income for financial instruments whose changes in fair value are recognized in net income, and for financial liabilities eligible for the amortized cost option, (3) Balance sheet presentation of cumulative credit losses for financial instruments whose changes in fair value are recognized in other comprehensive income (OCI), (4) Foreign currency transaction gains/losses for financial instruments whose fair value changes are recognized in OCI, and (5) Disaggregation of other changes in fair value. See FASB's Summary of Board Decisions http://www.fasb.org/cs/ContentServer?c=FASBContent_C&pagename=FASB%2FFAS... for official results of the August 13 board meeting. Additional highlights from the board's discussion can be found in this FEI Summary http://www.financialexecutives.org/eweb/dynamicpage.aspx?site=_fei&webco... . (NOTE: FEI members-only can download the FEI Summary; Join FEI http://www.financialexecutives.org/eweb/DynamicPage.aspx?Site=_fei&WebKe... to have access to members-only summaries, reduced registration fees at our upcoming conferences and events http://www.financialexecutives.org/eweb/DynamicPage.aspx?Site=_fei&WebKe... , and more.).

American Bankers Association Voices Concern with Financial Instruments Project
In related news, the American Bankers Association filed two comment letters with the FASB in August, attaching two white papers on valuing loans, and on the pace and direction of the financial instruments projects being undertaken at FASB and the IASB generally. Read more about ABA's concerns and FASB's response here: http://financialexecutives.blogspot.com/2009/08/financial-instruments-ed....

FASB Decides On Scope, Definition of Financial Instruments
Separately, at FASB's August 19 board meeting, the board agreed on the definition of financial instruments and certain matters that will be scoped out of the project at this time. Read FASB's Summary of Board Decisions http://www.fasb.org/cs/ContentServer?c=FASBContent_C&pagename=FASB%2FFAS... .

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