The proposal simplifies financial reporting for financial instruments by developing a consistent, comprehensive framework for classifying financial instruments, removes the threshold for recognizing credit impairments, and makes changes to the requirements to qualify for hedge accounting.
The main objective in developing this proposal is to provide financial statement users with a more timely and representative depiction of an entity’s involvement in financial instruments, while reducing the complexity in accounting for those instruments.
The FASB Exposure Draft would seek to bring more transparency into financial statements by incorporating both amortized cost and fair value information about financial instruments held for collection or payment of cash flows.
The proposal also aims at providing more timely information on anticipated credit losses to financial statement users by removing the “probable” threshold for recognizing credit losses.
Other potential issues include a single credit impairment model for both loans and debt securities. Also, the criteria for hedge accounting would be simplified in order to improve the consistency in the reporting of the economic impacts of hedging activities.
Press release
Link to Exposure Drafts
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