The Financial Accounting Standards Board plans to ask for public comment on one final aspect of its standard for financial instrument classification and measurement focused on how entities should disclose hybrid financial instruments containing embedded derivatives that are separately recognized.
FASB is inclined to require companies to disclose the carrying amount, measurement attribute, and line item within the financial statements where such derivatives and related host contracts are presented, but the board wants to seek feedback on that idea before baking it into a final standard. FASB plans to get a proposal out as soon as possible so the comment period can be wrapped up by April 20.
Meanwhile FASB wrapped up the key decisions on other aspects of the standard for how to classify and measure financial instruments and is drafting the final standard. The board remains committed to requiring companies to adopt the standard following a modified retrospective transition approach, which means cumulative catch-up adjustments to earlier periods in financial statements, but has not decided yet on an intended effective date. FASB says it will make that decision after the final standard is drafted.
In its recent meeting to make some final decisions on the standard, the board faced a tough decision on how companies should be required to explain their core deposit liabilities. Ultimately, a split board voted 4-3 to drop the disclosures required in the board’s proposal, which would have required companies to disclose the balance of core deposit liabilities, the weighted-average life of the core deposit liabilities based on the entity’s historical experience, and a qualitative description of what management considers to be core deposits.
Board members debated the extent to which the requirements originally proposed would have been duplicative of other regulatory requirements, difficult for management to follow based on different interpretations of what constitutes core deposits, and whether to define core deposits following other regulatory guidelines or other criteria. Ultimately, four board members voted that the proposed disclosure requirements around core deposits should be dropped all together.
Vice-Chairman Jim Kroeker said he supported dropping the disclosure requirement because he believed it would be difficult to define and wouldn’t fit with the objective of the accounting standard. “We’re trying to give forward looking information about when do I expect people to demand that we give their money back,” he said. “How does that fit into our disclosure framework? I don’t think it does.”