FASB Adds Projects on Investment Properties, Offsetting (Netting), and FX

At the Financial Accounting Standards Board's board meeting earlier today, FASB Chairman Robert Herz noted that after consultation with his fellow board members and its Emerging Issues Task Force (EITF) agenda committee, two projects are being added to FASB's agenda on (1) investment properties and (2) balance sheet offsetting or netting. Separately, he noted a project is being added to the EITF's agenda on multiple foreign currency exchange rates.

The information on the new agenda items which appears below is verbatim from FASB's Summary of Board Decisions, except for information which appears in [brackets], which I have added based on Herz' comments at the board meeting.

The FASB chairman announced that he added the following projects to the Board’s agenda:

1. Investments properties. The Board will consider whether entities should be given the option (or be required) to measure an investment property at fair value through earnings. Existing international financial reporting standards (IAS 40, Investment Properties) provides such an option. This project also will consider how an entity should consider a lease when measuring the fair value of a leased investment property.As part of this project, the Board also may address related issues that are within the scope of EITF Issue No. 09-D, “Application of Topic 946, Financial Services—Investment Companies, by Real Estate Investment Companies.” As a result, the EITF will not discuss Issue 09-D at its March 18, 2010 meeting. [NOTE: Herz said this project is, "something we looked at, when we had Fair Value Option - Phase 2 on our agenda, made more important now joint project on leases... also something that people in the real estate industry have come to us, preparer and user side, suggested would like to see option or even a requirement to fair value investment properties.]
   


2. Balance sheet—offsetting. The Board will reconsider the current criteria that determine when an entity may offset assets and liabilities and report them as a net amount in the statement of financial position. [NOTE: In presenting this item at the board meeting, this project was interchangably referred to as 'offsetting' or 'netting' although some people will distinguish between the two. Herz said the project is being added to FASB's agenda for two reasons: (1) difference in netting requirements between us [U.S. GAAP] and current IFRS, both boards had some presentations on that fairly recently from some groups, (2) we got a particular request, but it may be a harbinger of things to come, of stock loan transactions being put thru clearinghouses," he described these as centralized clearinghouses with automatic netting, adding the project would be focused on "financial instrument netting issues."]

The FASB chairman also announced that he added the following issue to the EITF’s agenda:

Accounting for multiple foreign currency exchange rates. The current economic situation in Venezuela has raised questions about the usefulness of information that results from applying existing foreign currency standards in economies that have multiple exchange rates. The EITF will reconsider whether it is appropriate to use different exchange rates in an economy with multiple exchange rates (such as a parallel rate and an official rate) for (1) remeasurement of a foreign-currency-denominated transaction and (2) translation of a foreign subsidiary’s financial statements.While the current situation in Venezuela highlights the reporting problem, the EITF will not limit its discussion to foreign currency transactions involving that country. [NOTE: Herz noted the project relates to "translating transactions and asset/liability balances, and translating accounts of foreign subsidiaries." He noted there have been "multiple exchange rate issues in Venezuela," and that this is "a topic that comes up from time to time, there has been some diversity in practice, some unofficial guidance," and that, "we have asked the EITF to look at that issue."]

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See also our earlier posts on the major topics discussed at today's FASB board meeting:
Hedge Accounting Will Permit Bifurcation-by-Risk; Emphasize Qualitative Assessment, and
Financial Statement Presentation Proposal Coming In April.

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