FASB issues proposals on Financial Instruments and Combining Income Statement with OCI statement

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FASB issues proposals on Financial Instruments and Combining Income Statement with OCI statement Resources Global Professionals Finance & Accounting Blog Friday, May 28. 2010 FASB issues proposals on Financial Instruments and Combining Income Statement with OCI statement On May 26th, the FASB released two Exposure Drafts (EDs) of proposed Accounting Standards Updates (ASU) for comment by September 30, 2010. The two related proposals could result in a significant change in how companies account and report certain financial instrument transactions. Additional the proposal on Other Comprehensive Income (OCI) seeks to combine the traditional income statement with the Statement of OCI into one. Comments are due on both proposals by September 30, 2010.

Among other changes, the ED on financial instruments would require amortized cost information and fair value information for financial instruments held for collection or payment of cash flows. Additionally, a single method for estimating credit losses for all financial instruments would be created requiring more timely loss recognition ("probability" threshold would be removed). This shifts the model from an "incurred" loss approach to one that is more forward looking. However, it does not appear to go as far as the "expected" loss approach proposed by the International Accounting Standards Board. No proposed effective date was given, but many are guessing it wouldn't be before 2012 or 2013.

While both the FASB and the IASB have come to different tentative conclusions regarding the accounting for financial instruments. Sir David Tweedie, IASB Chair, indicated that the IASB will "expose" the FASB's proposal to its constituents as well. The thought would be that both boards would ultimately "converge" their methodologies and conclusions in final standards after much deliberation from constituents (particularly users of financial statements).

The combining of the income statement and the OCI statement is part of a related project, the Financial Statement Presentation project. The IASB issued an ED on this topic yesterday similar to the FASB's proposal.