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2015 Release Date Planned for Financial Instruments Standards

The FASB’s research staff wants to complete work on the classification-and-measurement phase of financial instruments during the next several weeks and return to the board with a draft of the final update. For the asset impairment phase, the board is scheduled to make its final decisions in October and perhaps give the staff clearance to prepare the final update in November. The board may give its approval to publishing both sets of amendments before the end of the year.

The FASB is tentatively planning to release the first two updates for its planned overhaul of financial instruments accounting in the first half of 2015.

The board’s research staff wants to complete work on the project’s first phase, for the classification and measurement of financial instruments, during the next several weeks and return to the board with a draft of the final update. For the asset impairment phase, the board is scheduled to make its final decisions in October and perhaps give the staff clearance to prepare the final update in November. A FASB spokesman said in an email that the final updates are tentatively planned for publication in the year’s first half.

The board needs to determine the effective date and transition method for both sets of amendments before it approves their publication.

“We will take stock of all the decisions and present the board a cost benefit analysis of what they have decided,” said Rahul Gupta, a member of the FASB’s research staff, while he discussed the classification and measurement phase during a September 8, 2014, meeting between the accounting board and the Institute of Management Accountants.

Gupta said some of the changes from the February 2013 Proposed Accounting Standards Update (ASU) No. 2013-220, Financial Instruments—Overall (Subtopic 825-10), Recognition and Measurement of Financial Assets and Financial Liabilities, were subject to reconsideration prior to publication, particularly the provision for marking down investments held under the equity method of accounting.

The comment letters for the proposal caused the board to question the provision that said that equity method investments would be subject to a one-step test before a decision to mark them down. Gupta said the board may consider a new approach.

“One of the alternatives could be to scope out equity method investments from this project because we aren’t changing anything else, in terms of the guidance that’s contained in [Topic] 323,” Investments—Equity Method and Joint Ventures, Gupta said. “Other alternatives could be to come up with a new model for impairing those securities.”

John Stewart, managing director with Financial Reporting Advisors LLC in Chicago, questioned the decision to exempt private companies from disclosing the fair value of securities recorded at amortized cost on their balance sheets. He doubted that investors will be able to get the fair value information from the company.

Gupta said the exemption applied only to instruments that were trading on a market with quoted prices, but that wasn’t enough to satisfy Stewart.

“In my experience with private companies, they don’t always have the access to management as your model assumes,” Stewart said, in reference to investors.

“Especially if it is a troubled situation, you don’t have access to management,” said Nancy Schroeder, chair of the IMA’s Financial Reporting Committee. “Those are the times when you may want that information.”

The staff is planning to discuss the disclosure requirements and the scope for the planned amendments on asset impairment at an October 22 meeting, said FASB staffer Jack Pohlman. On November 5, the staff wants the board to determine the effective date and review the changes’ costs and benefits.

The exposure draft of the standard was published in December 2012 as Proposed ASU No. 2012-260, Financial Instruments—Credit Losses (Subtopic 825-15).

The IMA and FASB spent several minutes questioning one another about a hypothetical example of a manufacturer that parked some idle cash by investing in a single, investment-grade bond. Members of both panels wondered about the steps the company would follow in valuing the bond. Stewart posed the question because he said it’s a situation that happens from time to time, and he couldn’t provide a clear answer.

No clear consensus emerged from the discussion.

“I know you guys focus a lot on financial institutions, but there are a lot of people who aren’t financial institutions,” Stewart said, further explaining his interest in the issue.

“It’s hard to come up with an example that fits every situation,” Pohlmann said.

“When we start debating the application of this to that type of a fact pattern, reasonable people seem to have different views on the same topic,” said Kirk Silva, vice president and head of accounting policy for Fannie Mae.

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