AICPA: Financial Instruments Compromise Potentially Flawed

BY MATTHEW G. LAMOREAUX

The AICPA’s Financial Reporting Executive Committee (FinREC) on Thursday expressed a number of concerns on the supplementary document, Accounting for Financial Instruments and Revisions to the Accounting for Derivatives Instruments and Hedging Activities-Impairment published Jan. 31 by FASB and the IASB.

 

“Although we recognize the need for convergence, the current proposal does not address many issues and may not be conceptually sound,” FinREC said in a letter to FASB . “Due to the short comment deadline, we do not have sufficient data to provide adequate input, which makes it difficult to determine whether this proposed Standard would work in practice.”

 

“We do not support the full life expected loss model that was originally proposed,” the letter states. “We believe that the incurred loss model for recognition of credit impairment should be retained since we believe losses should not be recognized until there is a triggering event”

 

The letter continues: “ We are concerned that the proposed impairment model would be a significant departure from the incurred loss model articulated in ASC 450, Contingencies (f/k/a FASB Statement No. 5), which is broadly applicable beyond the topic of loan loss reserves and the financial services industry (e.g., litigation loss contingencies and natural disasters)…. [We] strongly recommend that a revised comprehensive financial instruments Exposure Draft (ED) be issued that addresses our concerns and recommendations, as well as those of other commenters, on classification and measurement, impairment, and hedge accounting.”

 

The AICPA committee also recommended “that respondents be given more time to adequately study the issues and provide further detailed and meaningful commentary on this Supplementary Document (SD).”

 

It said more time is needed for field-testing the proposal to determine whether there are any significant operational issues with the impairment model and whether it would achieve the objective of providing more meaningful information and transparency. 

 

—Matthew G. Lamoreaux ( mlamoreaux@aicpa.org ) is a JofA senior editor.

 

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