The global financial crisis has brought considerable focus on the accounting model for financial instruments, both in the US and around the world. The significant rise in the volumes of asset securitizations and derivative financial instrument transactions has served to bring attention to particular features of accounting standards that seem counterintuitive to some and counterproductive to others. Since the savings and loan crisis of the 1980s, the arc of development of US GAAP has been toward the use of fair values, especially for financial instruments, on balance sheets, but with substantial opportunities to keep the effects out of income statements. FASB acted relatively quickly on several fronts directly related to the crisis and its shorter term implications. FSP 157-3, addressing...
The global financial crisis made people realize that the global financial system had become more vulnerable over time as certain business practices had become more prevalent. But while there is near-universal agreement that financial instruments were part of the problem, there is less agreement about whether accounting standards for financial instruments helped or hurt the situation. In any case, accounting standards setters in the US and throughout the world have responded to the widespread belief among their constituents that accounting standards for financial instruments need to be changed. This article is the first of two that will describe recent and forthcoming changes to financial-instrument accounting standards -- changes that carry significant implications for preparers, audito...
This column is the second of two that describe recent and forthcoming changes to financial-instrument accounting standards -- changes that carry significant implications for preparers, auditors, and users of financial statements. In contrast to the International Accounting Standard Board's (IASB) three-phase approach to replacing International Accounting Standard 39, Financial Instruments: Recognition and Measurement, the Financial Accounting Standard Board (FASB) is taking a one-shot approach to revising Accounting Standards Codification Topics 825, Financial Instruments, and 815, Derivatives and Hedging. In the first quarter of this year, the FASB will issue an ED of a proposed Accounting Standards Updates that will include all changes the FASB believes should be made to its financial...
NEW YORK, Sept. 9 /PRNewswire-USNewswire/ -- North American insurers and reinsurers expressed concern that the Financial Accounting Standards Board (FASB) proposed Accounting Standard Update designed to simplify existing accounting standards for financial instruments and hedging activities does not provide decision useful information to investors in insurance companies. The Group of North American Insurance Enterprises (GNAIE) said the proposed update fell short of the FASB's objective of providing financial statement users with a more timely and representative description of an entity's involvement in financial instruments while reducing complexity in accounting for them.
Few accounting rules have caused financial statement preparers and their auditors more headaches than Statement of Financial Accounting Standards No. 133 (SFAS 133), Accounting for Derivatives and Hedging Activities. The Financial Accounting Standards Board (FASB) has amended SFAS 133 several times since its initial issuance in June 1998, most recently with the issuance of SFAS 155, Accounting for Certain Hybrid Financial Instruments. One of the most confusing elements of the accounting standard are the rules relating to embedded derivatives. Since tripping over an embedded derivative is by no means unheard of, and easy to do, below are a few suggestions that may help you identify or avoid accounting errors related to embedded derivatives: 1. Review existing financial instruments for em...
Despite ICBA warnings about the dangers of mark-to-market accounting to community banks, the Financial Accounting Standards Board (FASB) released a proposal to mark nearly all financial instruments on financial firms' balance sheets, including deposits and loans, to fair value. The Exposure Draft, "Accounting for Financial Instruments and Revisions to the Accounting for Derivative Instruments and Hedge Activities," is out for public comment until September 30. For several decades, FASB has been working toward full mark-to-market accounting and has implemented guidance affecting parts of the balance sheet such as investments. It has been criticized for requiring mark-to-market accounting for only parts of the balance sheet, which has caused some confusion for statement users. Community b...
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