Financial Instruments - FASB ED 2010

In May 2010 the FASB issued the Exposure Draft Accounting for Financial Instruments and Revisions to the Accounting for Derivative Instruments and Hedging Activities. The IASB published a request for comments asking its constituents to respond to the FASB. The FASB Exposure Draft sets out a comprehensive approach to financial instruments classification and measurement, impairment and hedge accounting. EFRAG organised a user outreach event on 15 September 2010 on accounting for financial instruments. In the FASB ED Accounitng for Financial Instruments consultation made by EFRAG there was support for the following elements in the IASB's approach:

• classification criteria based on the characteristics of the financial instruments and the business model used by the entity in managing those financial instruments;

• a mixed measurement model that allows financial instruments to be reported at either amortised cost or fair value, depending on the business model;

• reclassification required when there is a change in the conditions that lead to initial classification;

• primary financial statements that reflect one measurement attribute only for each financial instrument;

• impairment of financial assets measured at amortised cost based on an expected loss approach that uses all available credit-related information, including forecasts of future events and future economic conditions; and

• recognition of fair value changes due to changes in an entity's own credit risk outside profit or loss, when liabilities are designated under the fair value option, except in extremely rare circumstances where the fair value changes of financial assets are directly linked to an issuer's own credit risk. The FASB was reported to have completed its redeliberations on classification and measurement. Although the FASB has not yet made a formal decision, we expect a re-exposure of its classification and measurement conclusions. The FASB has not yet redeliberated its hedge accounting proposals and the timing of a final standard is unclear.

EFRAG published its comment letter on 28 October 2010.