Project Update

Accounting for Financial Instruments—Joint Project of the FASB and IASB

Last updated on December 1, 2011. Please refer to the Current Technical Plan for information about the expected release dates of exposure documents and final standards.

(Updated sections are indicated with an asterisk *)

This project update summarizes the project activities and decisions of the IASB and the FASB (Boards). It was prepared by the staff and is for the information and convenience of their constituents. All decisions of the Boards are tentative, may change at future Board meetings, and do not change current accounting and reporting requirements. Decisions of the Boards become final only after extensive due process.

*Overview
Project Objective
Project Set-Up/Next Steps
Due Process Documents
Summary of Decisions Reached to Date
Board/Other Public Meeting Dates—Current
Board/Other Public Meeting Dates—Prior to ED Issuance 
Background Information
Contact Information


*Overview

This page contains information pertinent to the Accounting for Financial Instruments project in its entirety, including the Summary of Decisions Reached to Date for the entire project. Please refer to the classification and measurement, impairment, and hedge accounting project pages for specific details on the Boards’ respective project plans for each component of the broader Accounting for Financial Instruments project. Please see the below links:

Topic Last Updated
Classification and Measurement  11/10/11
Credit Impairment 
 11/10/11
Hedge Accounting 
 12/1/11

Project Objective

The objective of this project is to significantly improve the decision usefulness of financial instrument reporting for users of financial statements. The project will replace the FASB’s and IASB’s respective financial instruments standards with a common standard. The Boards believe that simplification of the accounting requirements for financial instruments should be an outcome of this improvement. Although the project objective is comprehensive, it is also the Boards’ objective that the project should be completed expeditiously.

The Boards believe that this project will:
  1. Reconsider the recognition and measurement of financial instruments
  2. Address issues related to impairment of financial instruments and hedge accounting
  3. Increase convergence in accounting for financial instruments.
The Board decided to include redeliberations on the Accounting for Hedging Activities Project within this project. Therefore, this project will also:
  1. Simplify and resolve practice issues in accounting for hedging activities
  2. Improve the financial reporting of hedging activities to make the accounting model and associated disclosures easier to understand for users of financial statements
  3. Address differences in the accounting for derivative instruments and hedged items or transactions.
To meet the project’s objective, the Board has implemented an extensive outreach plan to obtain feedback from all constituents, including investors, preparers, auditors, regulators, and others on issues relevant to this project.

Project Set-Up/Next Steps

FASB Project Set-Up

The Boards continue to develop a comprehensive model for accounting for financial instruments, including hedge accounting. The Boards plan to deliberate certain issues relevant to this project separately and then meet subsequently to reconcile differences in their technical decisions.

The FASB considered approaching the project in several phases and issuing multiple exposure documents. However, the FASB believes that these issues are interrelated and that a comprehensive approach will result in more coherent requirements, making it easier for constituents to understand and react. For example, impairment of financial assets depends on the overall classification and measurement model for financial instruments, just as the classification and measurement model influences the relevance and cost/benefit of each impairment model. The FASB also is considering overlapping issues with respect to hedge accounting. A comprehensive approach to accounting for financial instruments may also reduce the possibility of entities having to change their accounting policies and systems on several occasions.

IASB Project Set-Up

The IASB decided to complete its deliberations on the project in three phases:

Phase 1: Classification and measurement—On November 12, 2009, the IASB issued IFRS 9 Financial Instruments containing requirements for classifying and measuring financial assets. On October 28, 2010, the IASB added the requirements for classifying and measuring financial liabilities to IFRS 9 to complete this phase of the project. Most of the requirements for financial liabilities were carried forward unchanged from IAS 39. However, some changes were made to the fair value option for financial liabilities to address the issue of own credit risk. At the July 22, 2011 meeting, the IASB tentatively decided that the mandatory effective date of IFRS 9 should be changed to annual periods beginning on or after January 2015. In addition, the IASB decided that early application of IFRS 9 should continue to be permitted. The IASB decided to issue an exposure draft pertaining to the deferral of the effective date for IFRS with a comment period of a minimum of 60 days.

Phase 2: Impairment—The IASB made tentative decisions about impairment and issued an exposure document on amortized cost and impairment in November 2009. The comment period ended on June 30, 2010. The IASB then redeliberated issues related to impairment jointly with the FASB and issued a Supplementary Document on impairment accounting on January 31, 2011 proposing a common solution to impairment accounting. The comment period ended on April 1, 2011 for the Supplementary Document. The FASB and IASB will consider feedback received on the Supplementary Document during joint redeliberations on the credit impairment accounting model.

Phase 3: Hedge accounting—The IASB made tentative decisions about hedge accounting and issued an exposure document on hedge accounting in December 2010. The comment period ended on March 9, 2011.

Click here to access the IASB's financial instruments project website for more information about the IASB project plan, the expected timing of exposure drafts and final standards, and a summary of the IASB's decisions reached to date.

Due Process Documents

On May 26, 2010, the FASB issued one comprehensive proposed Accounting Standards Update, Accounting for Financial Instruments and Revisions to the Accounting for Derivative Instruments and Hedging Activities (proposed Update), which addresses the measurement, classification, and impairment of financial instruments, as well as hedge accounting. The comment period ended on September 30, 2010.


The FASB and IASB issued for comment a Discussion Paper, Reducing Complexity in Reporting Financial Instruments, in March 2008. The comment period ended September 19, 2008.


Summary of Decisions Reached to Date (as of October 20, 2011) 

Summary of Decisions Reached to Date During Redeliberations 

Board/Other Public Meeting Dates—Current

The Board meeting minutes are provided for the information and convenience of constituents who want to follow the Board’s deliberations. All of the conclusions reported are tentative and may be changed at future Board meetings. Decisions become final only after a formal written ballot to issue a final standard.

October 19, 2010 FASB Roundtable Meeting—Discussions about the proposed Accounting Standards Update
Session 1 
Session 2 
October 18, 2010 FASB Roundtable Meeting—Discussions about the proposed Accounting Standards Update
Session 1 
Session 2 
October 12, 2010 FASB Roundtable Meeting with Private Companies and Not-For-Profit Entities—Discussions about the proposed Accounting Standards Update

Please refer to the classification and measurement, impairment, and hedge accounting project pages for Board meeting minutes related to each component of the broader Accounting for Financial Instruments project.

Board/Other Public Meeting Dates—Prior to ED Issuance

Background Information

At their joint meetings in April and October 2005, the FASB and the IASB discussed the future of reporting for financial instruments. The Boards established three long-term objectives to improve and simplify the reporting for financial instruments:

  1. Develop a new standard for the derecognition of financial instruments
  2. Require all financial instruments to be measured at fair value with realized and unrealized gains and losses recognized in the period in which they occur
  3. Simplify or eliminate the need for special hedge accounting requirements.

In March 2006, the Boards further clarified their intentions to work together to improve and converge financial reporting standards by issuing a Memorandum of Understanding (MoU), A Roadmap for Convergence between IFRSs and US GAAP—2006 – 2008. As part of the MoU, the Boards worked jointly on a research project to reduce the complexity of the accounting for financial instruments. This joint effort resulted in the IASB’s issuance of the March 2008 Discussion Paper, Reducing Complexity in Reporting Financial Instruments, which the FASB also published for comment by its constituents. Focusing on the measurement of financial instruments and hedge accounting, the Discussion Paper identified several possible approaches for improving and simplifying the accounting for financial instruments.

At the joint meeting in October 2008, the FASB and IASB decided to create an advisory group that comprises senior leaders with broad international experience in financial markets. The Financial Crisis Advisory Group (FCAG) was asked to identify any accounting issues that require the Boards’ urgent and immediate attention as well as issues for longer-term consideration. On July 28, 2009, the FCAG issued their Final Report.

The Boards also organized three roundtables in 2008 – one each in London (November 14, 2008), Norwalk (November 25, 2008), and Tokyo (December 3, 2008). The purpose of these roundtables was to (a) allow members of the Boards to hear input from a wide range of stakeholders, including users, prepares, and auditors of financial statements, regulators, and others; and (b) help the Boards identify accounting issues that may require their urgent and immediate attention to improve financial reporting and help enhance investor confidence in financial markets.

Participants in the roundtables made general comments about the importance of (a) working toward convergence between IFRS and U.S. GAAP and (b) allowing sufficient due process before the IASB or the FASB make any changes to current accounting guidance. Participants raised the following issues at the roundtables: (a) impairment, (b) fair value option, (c) fair value measurement, (d) clarification of the interaction of conflicting accounting standards, and (e) clarification for investments in collateralized debt obligations.

In addition to considering the potential for short-term responses to the credit crisis, both Boards emphasized their commitment to developing common solutions aimed at providing greater transparency and reducing complexity in the accounting of financial instruments. As starting points for this longer term objective, the Boards considered the comments received in response to the Discussion Paper on reducing complexity and the Exposure Draft on hedging, the deliberations of the Financial Crisis Advisory Group advisory group, input received at the 2008 roundtables, input received from the IASB Financial Instruments Working Group, and numerous informal discussions with constituents. Please refer to the FASB Outreach Summary (as of May 2010) for a summary of feedback received prior to the issuance of the proposed Accounting Standards Update.

The FASB and the IASB continue to consider constituent feedback on necessary improvements to financial reporting for financial instruments. The Boards will continue to deliberate certain issues and determine the best path forward within the context of project objectives.

Contact Information

Trent Handy
Practice Fellow (Project Lead)
tlhandy@fasb.org


Additional Details