U.S. and international accounting rule makers spent three days this week making progress on a number of outstanding projects on the road to a unified accounting rule book, most notably trying to iron out their different ideas about how to improve accounting for financial instruments.

The economic meltdown exposed big problems in U.S. and international requirements for how fair value is measured and applied to complex financial instruments. It also spotlighted where there are differences between the two approaches and punctuated the need for a more consistent approach to assure comparability of entities around the globe.

The two boards are working on new standards for International Financial Reporting Standards and U.S. Generally Accepted Accounting Principles that would dramatically alter how financial instruments are accounted for currently. Most notably, both boards want to require much more use of fair value, though they’re not entirely in agreement on just how much and how values should be presented in financial statements.

In a series of joint meetings, the boards agreed on a set of core principles for how to end up with a converged standard. According to a Deloitte account of the discussion, the boards agreed that the new requirements should enhance comparability, provide transparency to risk and strategy, and give prominent and timely fair-value information for instruments that have highly variable cash flows or are held for trading.

The boards also agreed amortized cost and fair value, rather than settlement with a third party, is relevant for instruments where principal amounts are held for collection or payment, though board members had concern about how an entity’s own credit worthiness affects fair value of liabilities. They agreed they want a consistent impairment approach for financial assets held for collection of contractual cash flows.

Currently, FASB is considering an impairment model that IASB hasn’t fully endorsed. The boards are forming an expert advisory panel to consider the operational aspects of what FASB has developed to help both boards sort through the ultimate solution.

The boards also compared notes on how to measure fair value, where FASB has had a standard in place since 2007, now contained in the Accounting Standards Codification under Topic 820, and IASB is still working on an exposure draft. The boards agreed they want to end up with a converged standard, but IASB has expressed reservations about FASB’s approach.

FASB has stood its ground on its definition of fair value and its approach to measuring it, but the board told IASB it will take a look at comments IASB has received on its exposure draft and consider whether U.S. GAAP should be changed as a result.

In other business, the boards picked away at ongoing projects to revise rules on revenue recognition, discontinued operations, financial statement presentation, insurance, leases, income taxes, and financial instruments with characteristics of equity.

Topics