The Financial Accounting Standards Board may be sending up a smoke signal with an unusual missive describing how investors aren’t entirely in love with the board’s proposed new rules on financial instruments.

The board published a nine-page description of its interaction with investors regarding FASB’s controversial proposal to call for more fair value in accounting for financial instruments. It opens with a reminder that FASB writes accounting rules to assure that financial statements produce information useful to investors, then explains how investors are reacting to the proposal when the board conducts face-to-face meetings with investors.

The key controversy in the proposed accounting standard is a requirement for companies, including banks and financial institutions, to report the value of loans and other financial instruments at fair value—even if their fair values are dramatically lower than their historical values or the cash flows they are expected to produce over the long haul. Banks have argued ferociously that their intentions to hold such instruments rather than sell them should be reflected in the values that are booked in financial statements.

FASB’s feedback summary says the majority of investors agree with the bankers on that point. They’d like to see better information about risks—including interest rates, credit, and liquidity—but they don’t believe fair value, with changes flowing through equity, is the best way to measure such instruments, FASB said.

“They believe fair value for these instruments would increase subjectivity of reported information and would not appropriately represent financial results for these instruments based on the way they are managed,” FASB wrote. “A minority of investors consulted favor fair-value measurement for all financial instruments.”

The board doesn't normally publish outreach overviews, except in board meeting agenda handouts, and FASB offered no explanation for why it published the overview on this standard. FASB has already received more than 1,600 letters and e-mails on the subject, most raising strong objections to its current proposal, and board member Larry Smith has already signaled in remarks to the media that the board likely will retreat on that key point when it ultimately adopts the standard.

The surprise retirement of former Chairman Robert Herz, who left the board effective Oct. 1, gives the board a face-saving opportunity to rethink its original proposal. Herz championed the all-fair-value approach when the board voted 3-2 to publish the proposal for public comment.

Even further, FASB’s overseer, the Financial Accounting Foundation, is adding two more seats to the five-member board. That means there could be potentially three new votes cast on the final standard, depending on FAF’s timing for filling the vacant seats. FAF has already appointed FASB Technical Director Russ Golden to the board and has assigned FASB member Leslie Seidman, who voted against publishing the proposal in its current form, to take over the chairman duties.

FASB is holding roundtables on the proposal on Oct. 12, Oct. 18, and Oct. 19 before making a final determination.

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