Financial Instruments and International Convergence
by Leah Donti, MBA
Allison Henry, Vice President - Professional & Technical Standards, spoke with Leah Donti, MBA, an internationally credited certified management accountant, to get her take on FASB’s latest position on financial instruments.
What effect does FASB’s proposed accounting standards update, Accounting for Financial Instruments and Revisions to the Accounting for Derivative Instruments and Hedging Activities, have on financial instruments and international standards convergence?
The finance world continues to create new financial instruments, therefore, we can continue to expect ongoing evolution of accounting standards. Most financial instruments involve counter parties from different countries, making it important for the boards to reach a consensus in this area. After IFRS, it will be difficult for the United States to claim unique needs pertaining to financial instruments. We cannot have the debit side of one transaction from the U.S. party accounted for in a different way from the counter party in another country. This has the potential to create confusion for users of the financial statements.
How effectively do you believe this standard (or other standards issued in conjunction with it) addresses the issues surrounding fair value accounting?
How does the proposed standard affect investors, 401(k) participants, and other nonfinancial services businesses with investments on their books?
Does this standard portend future changes in standard-setting? If so, what might this indicate?
The financial instruments exposure draft also includes significant changes for hedge accounting, and proposes a major overhaul of this area.
FASB and IASB will make it a priority to work together on this standard, and are likely to go down in history for achieving significant improvements in this area. The financial statement presentation project will be significantly affected by decisions made about financial instruments. The lease exposure draft is another area that will be affected.
Every CPA should become familiar with the new exposure draft, and if possible, participate in a FASB round table or attend a seminar on this subject.
Leah Donti is a provider of continuing education seminars on topics including international accounting, stock options, business combinations, variable interests, revenue recognition, fair value accounting, and A&A updates.
LAST UPDATED 12/13/2010