Signaling even more hope for a single accounting approach for financial instruments, the Financial Accounting Standards Board and the International Accounting Standards Board have agreed to work together to chisel away their differences in how financial instruments should be classified and measured.

FASB and IASB have been working separately on how to bring change to the accounting for financial instruments, leading to broad skepticism about whether they can achieve convergence on this critical area of accounting. FASB is working on revisions to a May 2010 proposed accounting standards update that addresses classification and measurement, impairment, and hedge accounting in a single package.

The IASB is following a phased approach; in 2009, the board adopted IFRS 9: Financial Instruments in 2009 to spell out new requirements for classification and measurement, and revised it in October 2010. Both boards are working on a mixed-attribute model, where some instruments are measured at fair value and others at historical cost, but there are still differences in the two boards' approaches.

While the two boards have pursued different approaches and timetables to bring changes to the accounting for financial instruments, they have decided they will work together to focus on whether they can narrow or eliminate differences in some key areas, says FASB spokesman Christine Klimek. For example, the boards tentatively decided they will focus on whether they can come to an agreement on how to account for the contractual cash flow characteristic of an instrument and the need for “bifurcation” of financial assets, or the breaking apart of instruments that are currently linked for any number of reasons.

The boards also decided they will look at whether they can agree on a separate classification category for debt instruments measured at fair value and reported through other comprehensive income, and any other interrelated issues that may surface as they explore those issues, such as disclosures or how to address financial liabilities depending on decisions surrounding financial assets. “The boards tentatively plan to discuss each issue jointly and what changes, if any, they would propose to make to their separate models and incorporate in their respective exposure drafts,” says Klimek.

The two boards earlier reached some significant agreements on how they can achieve a more converged approach to impairments, but stakeholders are pressing the boards for a more common approach to classification and measurement, said FASB Chairman Leslie Seidman in a statement. “(This) decision to work together on key differences, which represent the most significant remaining differences between the decisions reached to date, is responsive to stakeholders in the U.S. and abroad,” she said. “The boards will share the feedback they have received on their respective decisions and strive to develop a more closely converged approach that addresses those concerns.”

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