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.

IASB issues proposals on pension accounting and financial liabilities

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IASB issues proposals on pension accounting and financial liabilities Resources Global Professionals Finance & Accounting Blog Wednesday, May 12. 2010 IASB issues proposals on pension accounting and financial liabilities The IASB recently issued two proposals that differ substantially from current practice and from US GAAP.

The first governs pension accounting (a proposed update from IAS 19). Under the exposure draft (ED) the IASB proposes that the impact of asset gains and losses would be reflected in other comprehensive income (OCI) rather than net income. Currently, under US GAAP, companies recognize these gains and losses in income - but can "smooth" them over several years - sometimes essentially deferring them. The proposal requires that pension accounting be separate into 3 parts. 1) Operating income - would include service cost and past service cost; 2) Net financing cost - would include estimated interest income and expense and 3) OCI - would include remeasurements (actual return on plan assets excluding the amounts included in net financing cost, actuarial gains/losses associated with changes in assumptions, pension settlements, surplus restrictions, foreign currency rate changes). Essentially, by including the remeasurements in OCI - there would be likely less volatility in the income statement.

It should also be noted, that under the joint project on Financial Statement Presentation that the FASB/IASB has ongoing - the income statement and the statement of comprehensive income would be combined - so at some all would be on the same statement.

The other change is to how companies measure financial liabilities. Currently, under US GAAP, FAS 157 (Fair Value Measurements) requires that financial liabilities be recorded at fair value, which includes the requirement to record gains or losses associated with an entity's own debt due to credit rating changes. This has the inane effect of recording gains when an entity's credit rating is downgraded and losses when it is upgraded. (I sat on the Financial Accounting Standards Advisory Committee(FASAC) at FASB when this was first discussed - the reaction from virtually everyone on the committee was disbelief. However, the FASB proceeded with requiring this inane accounting anyway.) Thankfully, the IASB was rational in its decision making and came to the conclusion in this proposal that changes in a company's own credit rating should not impact the profit or loss statement.

 

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

Finance & Accounting
Human Capital
Information Management
Legal & Regulatory
Risk & Compliance
Supply
Chain
IFRS/Convergence
policyIQ®
Government Services
Insights & Education
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. Posted by Colleen Cunningham at 07:55 | Comment (1) | Trackbacks (0)
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Thank you for your great

content. #1 ChristianLouboutin (Homepage) on 2010-06-01 22:55 (Reply)
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IASB issues proposals on pension accounting and financial liabilities

Finance & Accounting
Human Capital
Information Management
Legal & Regulatory
Risk & Compliance
Supply
Chain
IFRS/Convergence
policyIQ®
Government Services
Insights & Education
IASB issues proposals on pension accounting and financial liabilities Resources Global Professionals Finance & Accounting Blog Wednesday, May 12. 2010 IASB issues proposals on pension accounting and financial liabilities The IASB recently issued two proposals that differ substantially from current practice and from US GAAP.

The first governs pension accounting (a proposed update from IAS 19). Under the exposure draft (ED) the IASB proposes that the impact of asset gains and losses would be reflected in other comprehensive income (OCI) rather than net income. Currently, under US GAAP, companies recognize these gains and losses in income - but can "smooth" them over several years - sometimes essentially deferring them. The proposal requires that pension accounting be separate into 3 parts. 1) Operating income - would include service cost and past service cost; 2) Net financing cost - would include estimated interest income and expense and 3) OCI - would include remeasurements (actual return on plan assets excluding the amounts included in net financing cost, actuarial gains/losses associated with changes in assumptions, pension settlements, surplus restrictions, foreign currency rate changes). Essentially, by including the remeasurements in OCI - there would be likely less volatility in the income statement.

It should also be noted, that under the joint project on Financial Statement Presentation that the FASB/IASB has ongoing - the income statement and the statement of comprehensive income would be combined - so at some all would be on the same statement.

The other change is to how companies measure financial liabilities. Currently, under US GAAP, FAS 157 (Fair Value Measurements) requires that financial liabilities be recorded at fair value, which includes the requirement to record gains or losses associated with an entity's own debt due to credit rating changes. This has the inane effect of recording gains when an entity's credit rating is downgraded and losses when it is upgraded. (I sat on the Financial Accounting Standards Advisory Committee(FASAC) at FASB when this was first discussed - the reaction from virtually everyone on the committee was disbelief. However, the FASB proceeded with requiring this inane accounting anyway.) Thankfully, the IASB was rational in its decision making and came to the conclusion in this proposal that changes in a company's own credit rating should not impact the profit or loss statement.

Both of these proposals seem rational and appropriate. The IASB, while taking heat for "listening" to its constituents, at least has some rationality in its decision making and takes the real world into account! Posted by Colleen Cunningham at 12:37 | Comments (0) | Trackbacks (0)
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