FASB Issues Proposals to Improve Reporting for Financial Instruments

FASB issued two proposals intended to address concerns arising from the financial crisis relating to accounting for financial instruments. The comment period for proposed FASB Staff Position EITF 99-20-a, Amendments to the Impairment and Interest Income Measurement Guidance of EITF Issue No. 99-20, ends today. It is available at www.fasb.org/fasb_staff_positions/prop_fsp_eitf99-20-a.pdf.

The proposal would amend the impairment guidance in EITF Issue No. 99-20, Recognition of Interest Income and Impairment on Purchased Beneficial Interests and Beneficial Interests That Continue to Be Held by a Transferor in Securitized Financial Assets. It is intended to reduce complexity and achieve more consistent determinations of whether other-than-temporary impairments of available-for-sale or held-to-maturity debt securities have occurred.

Proposed FSP FAS 107-a, Disclosures about Certain Financial Instruments: An Amendment of FASB Statement No. 107, is open for comment until Jan. 15. It is available at www.fasb.org/fasb_staff_positions/prop_fsp_fas107-a.pdf.

The proposal seeks to amend the disclosure requirements in FASB Statement no. 107, Disclosures about Fair Value of Financial Instruments, to increase the comparability of certain financial instruments that are economically similar but have different measurement attributes.

The proposed FSPs represent two of four short-term projects announced by FASB Chairman Robert Herz on Dec. 15 that are intended to improve and simplify current practices for accounting for financial instruments. FASB is working on the remaining projects—Clarification of the Embedded Credit Derivative Scope Exception in Paragraph 14B of Statement 133 and Recoveries of Other-Than-Temporary Impairments (Reversals).

In addition to these short-term efforts, Herz announced that following input received during the recent round-table discussions on the global financial crisis held with the IASB, and other input and discussions with constituents, FASB added to its technical agenda a comprehensive joint project with the IASB to address complexity in existing standards of accounting and reporting for financial instruments.

“Regaining investor confidence during this global credit crisis requires both immediate action and a plan for long-term improvement in the accounting for financial instruments,” Herz said in a press release. “By issuing these proposed FSPs, the FASB is taking immediate steps to reduce complexity and make the accounting for these instruments easier to understand.”