FASB discussed measurement of financial assets
27 January 2011
At January 25 2011 meeting, the FASB discussed the business strategy criterion to determine which financial assets would be measured at amortised cost.
The FASB decided that a business activity approach should be used and that financial assets that an entity manages for the collection of contractual cash flows through a lending or customer financing activity should be measured at amortized cost.
The FASB also decided that for all other business activities, financial assets should be measured at fair value. The FASB decided that financial assets for which an entity’s business activity is trading or holding for sale should be classified in the FV-NI category and that financial assets for which an entity’s business activity is investing with a focus on managing risk exposures and maximizing total return should be classified in the FV-OCI category.
The FASB requested the staff to refine which business activities would qualify for each classification and measurement category. Additionally, the FASB requested the staff to evaluate how various types of financial assets would be classified on the basis of the refined criterion.
The FASB also discussed the following:
1. Whether reclassifications between the three categories noted above should be permitted or required;
2. Whether subsequent sales of financial assets classified at amortized cost would call into question or “taint” the remaining financial assets classified in the amortized cost category; and
3. Whether changes in fair value that have been recognized in other comprehensive income should be recognized in net income when such gains or losses are realized from sales or settlements.
The FASB decided that reclassifications between categories of financial assets would not be permitted. However, the FASB requested that the staff provide at a future meeting presentation or disclosure alternatives for financial assets originally classified in the amortized cost category that the entity subsequently sells. The FASB also agreed to continue to discuss at future meetings disclosures for financial instruments that would provide transparency about the risks inherent in financial instruments and how an entity manages those risks.
Press release
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