The Financial Accounting Standards Board is planning a number of updates to accounting standards around all three of its major new standards on financial instruments.
As it airs and vets various implementation questions, the board determined in an open meeting that it will propose amendments to three major standards on financial instruments adopted over the past few years, including Accounting Standards Update No. 2016-13 on credit losses, ASU 2016-01 on recognizing and measuring financial assets and financial liabilities, and ASU 2017-12 on derivatives and hedging.
The standard on credit losses introduces the more forward-looking “current expected credit losses” approach now codified in the Accounting Standards Codification under Topic 326. FASB determined it will revise the CECL standard to address questions that have surfaced as companies are working to adopt the new accounting, which takes effect for public companies on Jan. 1, 2021.
The board determined it will make changes to address the effective interest rate for variable rate loans, adjusting the effective interest rate for prepayment expectations, and consideration of costs to sell when foreclosure is likely. It also will amend the guidance to clarify that reinsurance receivables are within the scope of the standard and make a few other edits to correct reference or cross-reference concerns.
The new standard on recognition and measurement of financial instruments, which took effect Jan. 1, 2018, for calendar-year public companies, will see some changes to shore up questions about how ASC Topic 820 on fair-value measurement relates to the new guidance on financial instruments. The board plans to address questions about the fair-value disclosure exclusion for certain held-to-maturity debt securities, and it will address marketable securities as nonmonetary items in the balance sheet.
As for new rules on hedging, which takes effect Jan. 1, 2019, but can be adopted early, FASB plans amendments on more than a half dozen issues, including partial-term fair-value hedges of both interest rate risk and foreign exchange risk and amortization and disclosure associated with fair-value hedge basis adjustments. The amendments will address consideration of the hedge contractually specified interest rate under the hypothetical derivative method and the application of a “first of” cash flow hedging technique to overall cash flows as a group of variable interest payments. It will also clarify the transition guidance.