Thursday, May 27, 2010

FASB Releases Proposals on Financial Instruments, Comprehensive Income

Late yesterday, the Financial Accounting Standards Board released two proposals (also called Exposure Drafts or EDs) of proposed Accounting Standards Updates (proposed ASUs) on two related projects:
  1. Proposed ASU: Accounting for Financial Instruments and Revisions to the Accounting for Derivative Instruments and Hedging Activities - Financial Instruments (Topic 825) and Derivatives and Hedging (Topic 815), and
  2. Proposed ASU: Comprehensive Income (Topic 220): Statement of Comprehensive Income
As noted in FASB's press release:

A briefing document about the financial instruments proposal entitled FASB In Focus is also available at the website, along with a “podcast” featuring an in-depth audio interview with FASB Chairman Robert Herz about financial instruments. The FASB will also be hosting a live webcast on the financial instruments proposal on June 30.
The comment deadline on the two proposals is September 30. FASB seeks input from all of its constituents, including preparers, auditors, investors and others.

FASB Board Members, Others Divided on Proposal
As reported by Steven Burkholder in today's BNA Daily Report for Executives:
A divided FASB approved the proposal. Herz and board colleagues Thomas Linsmeier and Marc Siegel supported its issuance.

The other members of the five-person panel, Leslie Seidman and Lawrence Smith, formally registered dissenting “alternative views.” Over the years, Seidman and Smith often have raised more questions than other board members about the efficacy of fair value-based accounting prescriptions.

Within 45 minutes of FASB's release of the draft ASU, the American Bankers Association registered criticism of the proposal. “FASB's proposal for mark-to-market accounting presents significant problems, not only for banks, but also the general economy,” ABA President Edward Yingling said in a prepared statement. “If implemented, the proposal would greatly undermine the availability of credit by making it difficult to make many long-term loans, the value of which, even if performing perfectly, would likely be reduced on the day the loan is made.”

In recent weeks, security analysts, such as Greg Jonas, a managing director at Morgan Stanley, have stated their support for FASB's overall approach on instruments, citing improvements to financial reporting they believe it would make possible.

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