Financial reporting / regulation


 The release of a FASB discussion paper for its disclosure framework project represents a significant step in the effort to improve the effectiveness of disclosures in financial statements.

The 81-page document, which FASB calls an invitation to comment, came the same day the European Financial Reporting Advisory Group (EFRAG) released a draft to address the handling of unwieldy notes in financial statements.

FASB added the disclosure framework to its agenda in July 2009 in response to concerns from business leaders, investors, and auditors about difficulty understanding disclosures in notes to financial statements of public, private, and not-for-profit organizations.

The FASB document, available at tinyurl.com/ca9kdlc, does not propose specific changes, rather it suggests options that FASB believes could lead to more effective disclosures.

The FASB report said its staff worked in conjunction with EFRAG and the financial-reporting organizations of the United Kingdom and France in developing the documents. “The objectives of the two documents are the same,” FASB’s report said. “That is, both aim to improve the effectiveness of disclosure.”

FASB’s invitation to comment addresses five topics:

  • Establishing requirements that address relevant information and only relevant information for investors and other stakeholders.
  • Flexible disclosure requirements that could be adapted by reporting organizations and applied to information that is relevant to the organizations’ specific circumstances.
  • A judgment framework that helps reporting organizations determine which disclosures are relevant to the organizations’ circumstances.
  • Techniques that help organize and format information so it’s easier to understand and find.
  • Disclosure requirements for interim period financial statements.


“Many stakeholders have expressed concerns about the relevance and sheer volume of information in notes to financial statements, and that some information is either missing or difficult to find,” FASB Chairman Leslie Seidman said in a statement. “Therefore, the FASB is looking to improve its own procedures.”

FASB is asking for comments by Nov. 16. EFRAG asked for comments by Dec. 31.

 James Kroeker, the SEC’s chief accountant since January 2009, stepped down in July to enter the private sector. The SEC named Deputy Chief Accountant Paul Beswick as acting chief accountant upon Kroeker’s departure.

Kroeker, who joined the SEC in 2007 as deputy chief accountant, served as staff director of the agency’s study of fair value accounting standards, which was mandated by Congress in 2008. He also led the efforts of the Office of the Chief Accountant to improve off-balance-sheet accounting standards. And he has guided the SEC’s efforts to analyze IFRS and to consider the prospects of incorporating the international standards into the U.S. financial reporting system.

His departure came as the SEC staff released its analysis on IFRS for U.S. public companies (see “Still in flux: Future of IFRS in U.S. remains unclear after SEC report,” page 28). Accounting professionals, business leaders, and regulators worldwide had been anticipating the release of the report because of its potential effect on the effort to develop a consistent set of international accounting standards. Beswick also played a key role in developing the report, serving as staff director.

“Jim has provided superb counsel on a range of accounting- and auditing-related matters and has always stressed the importance of accounting to our investor protection mission,” the SEC’s Schapiro said in a statement.

Prior to joining the SEC staff, Kroeker was a partner at Deloitte & Touche LLP, where he served in the firm’s National Office Accounting Services Group. He represented Deloitte on the AICPA Accounting Standards Executive Committee, now the Financial Reporting Executive Committee (FinREC). From 1999 to 2001, he was a practice fellow at FASB.

“As SEC chief accountant, Jim Kroeker has served with outstanding judgment, and his achievements have greatly benefited the nation’s investors, issuers, and our markets,” said Barry C. Melancon, CPA, CGMA, president and CEO of the AICPA. “Jim has approached his responsibilities with a strong commitment to the public interest and deep knowledge of the key issues of registrants and the profession. Jim has played a key role in efforts to improve financial reporting and reduce the complexity of financial disclosure. We wish him well.”

Kroeker said in a statement released by the SEC, “It has been a unique privilege to be a member of the commission’s staff during this truly unprecedented time and to have had the opportunity to work alongside the talented and dedicated individuals in the SEC’s Office of the Chief Accountant and across the commission.”

 FASB issued a proposed standard that is intended to help financial statement users better understand organizations’ exposure to liquidity risk and interest rate risk.

The proposed liquidity risk disclosures would provide information about the risk encountered by the reporting organization when meeting its financial obligations. It would apply to all private, public, and not-for-profit organizations. The nature of the disclosures will depend on whether the reporting organization is considered a financial institution.

Interest rate risk disclosures would apply only to financial institutions. They are structured to provide information about the exposure of financial assets and liabilities to market interest rate fluctuations.

The liquidity risk disclosures would require:

  • Financial institutions to disclose the carrying amounts of classes of financial assets and liabilities in a table, segregated by their expected maturities. These would include off-balance-sheet financial commitments and obligations.
  • Financial institutions that are depository institutions to disclose information about time deposit liabilities, including the cost of funding, in a table or list during the previous four fiscal quarters.
  • Organizations that are not financial institutions to disclose their expected cash flow obligations in a table, segregated by their expected maturities, without being required to include the reporting organization’s financial assets in that table.
  • All reporting organizations to provide their available liquid funds in a table, which includes unencumbered cash, high-quality liquid assets, and borrowing availability.
  • All reporting organizations to provide additional quantitative or narrative disclosure of the organization’s exposure to liquidity risk, including discussion about significant changes in the amounts and timing in the quantitative tables and how the reporting organization managed those changes during the current period.


The interest rate risk disclosures would require financial institutions to disclose:

  • The carrying amounts of classes of financial assets and financial liabilities according to time intervals based on the contractual repricing of the financial instruments.
  • An interest rate sensitivity table that presents the effects that shifts of interest rate curves could have on net income and shareholders’ equity.
  • Quantitative or narrative disclosures of the organization’s exposure to interest rate risk, including discussion about significant changes in the amounts and timing in the quantitative tables and how the reporting organization managed those changes during the current period.


FASB published the proposal separately from the classification and measurement aspects of its ongoing project on accounting for financial instruments, which it is undertaking along with the International Accounting Standards Board (IASB) in a convergence effort.

Another Proposed Accounting Standards Update (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), was issued in May 2010 by FASB. Deliberations on that proposal continue, but feedback from stakeholders in that project led to the separate publication of the Proposed ASU.

The board invited public comments on the ED, which is available at tinyurl.com/c6fepqs. Comments are due Sept. 25. FASB will conduct additional outreach with stakeholders before the comment period ends.

 GASB proposed a standard demonstrating how state and local governments should recognize nonexchange financial guarantees on their financial statements.

A nonexchange financial guarantee is a credit enhancement or assurance offered by a guarantor that is provided without receiving consideration of equal value. The guarantor agrees to repay the obligation holder if the debt issuer cannot make timely payments to the obligation holder. Financial guarantees represent potential claims on a government’s resources when it is the guarantor, and a potential reduction of a government’s obligations when it issues the debt.

GASB’s proposals are contained in an exposure draft, Accounting and Financial Reporting for Nonexchange Financial Guarantee Transactions. The ED is open for comment until Sept 28.

The proposed standard would require a state or local government guarantor that offers a nonexchange financial guarantee to recognize a liability on its financial statements when it is more likely than not that the guarantor will actually make a payment to the obligation holders under the agreement. In addition, the standard would require:

  • A government guarantor to consider qualitative factors when determining whether a payment on its guarantee is more likely than not to be paid. Those factors may include financial difficulties, initiation of bankruptcy proceedings, or financial reorganization on the part of the issuer of the guaranteed obligation.
  • Continued reporting of a liability by an issuer government that is required to repay a guarantor, unless legally released. Upon legal release, the government would recognize revenue as a result of the relief from the obligation.
  • A government guarantor or issuer to disclose information about the amounts and nature of nonexchange financial guarantees.


The amendments would be effective for periods beginning after June 15, 2013, and early application would be encouraged.

The ED is available at tinyurl.com/c6poeb2.

GASB Chairman Robert Attmore said in a statement that consistent recognition and disclosure guidance is needed because of increased evidence of financial guarantees between governments and their potential to result in payments by the guarantor.

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