FASB, IASB to work on classification and measurement for financial instruments

The US Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) are working together to reduce differences in their respective classification and measurement models for financial instruments.

The boards announced Friday that they will explore these models jointly, then decide whether to propose amendments to IFRS and US GAAP.

These discussions will take place as part of FASB’s ongoing reconsideration of a Proposed Accounting Standards Update (ASU) on financial instruments. The Proposed ASU, Accounting for Financial Instruments and Revisions to the Accounting for Derivative Instruments and Hedging Activities—Financial Instruments (Topic 825) and Derivatives and Hedging (Topic 815), was originally issued in May 2010.

The IASB will take the discussions with FASB into consideration in its project to make limited changes to IFRS 9, Financial Instruments, which was issued in November 2009. The IASB’s project was amended in 2010 as a result of its ongoing work to develop a new IFRS on insurance contracts and feedback received on how IFRS 9 applies to particular instruments.

In a statement, FASB Chair Leslie Seidman said the boards are continuing to develop a common approach to impairment of financial assets, which is the subject of a separate project. FASB is proposing enhanced disclosures about interest rate risk and liquidity, which are covered by IFRS 7, Financial Instruments: Disclosures.

“The boards have been urged to converge their standards on financial instruments,” Seidman said. “Today’s decision to work together on key differences—which represent the most significant remaining differences between the decisions reached to date—is responsive to stakeholders in the US and abroad.”

IASB Chairman Hans Hoogervorst said in a statement that IFRS 9 was introduced in 2009 with the idea that further amendments might be required when the direction on insurance contracts became clear. He said now is the time to consider those amendments.