Project Update

Accounting for Financial Instruments: Liquidity and Interest Rate Disclosures

Last updated on November 8, 2012. Please refer to the Current Technical Plan for information about the expected release dates of exposure documents and final standards.

(Updated sections are indicated with an asterisk *)

The staff has prepared this summary of Board decisions for information purposes only. Those Board decisions are tentative and do not change current accounting. Official positions of the FASB are determined only after extensive due process and deliberations.

Project Objective
*Due Process Documents
*Decisions Reached at Last Meeting
*Summary of Decisions Reached to Date
*Next Steps
*Board/Other Public Meeting Dates
Background Information
*Contact Information

Project Objective

The objective of this project is to improve, through disclosure, financial reporting about a reporting entity’s exposure to liquidity risk and interest rate risk.

*Due Process Documents 

On June 27, 2012, the Financial Accounting Standards Board issued proposed Accounting Standards Update, Financial Instruments (Topic 825): Disclosures about Liquidity Risk and Interest Rate Risk. Comment letters were due on September 25, 2012.

*Decisions Reached at Last Meeting

November 7, 2012

The Board discussed the comments received on Proposed Accounting Standards Update, Financial Instruments (Topic 825): Disclosures about Liquidity Risk and Interest Rate Risk. No decisions were made.

*Summary of Decisions Reached to Date

See Decisions Reached at Last Meeting above.

*Next Steps

The Board will reconsider the objective of the project.

*Board/Other Public Meeting Dates

The Board meeting minutes are provided for the information and convenience of constituents who want to follow the Board’s deliberations. All of the conclusions reported are tentative and may be changed at future Board meetings. Decisions become final only after a formal written ballot to issue a final standard.

*November 7, 2012 Board Meeting—Comments received on proposed Accounting Standards Update, Financial Instruments (Topic 825): Disclosures about Liquidity Risk and Interest Rate Risk.
May 9, 2012 Board Meeting—Decisions about clarifying certain decisions made during deliberations on specific qualitative disclosure requirements and the definition of the term financial institution as it will be used in the proposed Accounting Standards Update
April 11, 2012 Board Meeting—Decisions about incorporating elements of the Risks and Uncertainties project, permission to draft a proposed Accounting Standards Update, transition guidance and comment period
April 9, 2012 Education Session—Discussions about incorporating elements of the Risks and Uncertainties project, permission to draft a proposed Accounting Standards Update, transition guidance and comment period
October 19, 2011 Education Session—Discussions about the decisions reached to date on liquidity risk and interest rate risk disclosures
September 7, 2011 Board Meeting—Decisions about the results of the staff’s outreach, the project’s scope, and the staff’s recommended disclosures for liquidity risk and interest rate risk
August 31, 2011 Education Session—Discussions about the results of the staff’s outreach, the project’s scope, and the staff’s recommended disclosures for liquidity risk and interest rate risk
June 22, 2011 Board Meeting—Decisions about the results of the staff’s research and outreach related to risk disclosures, the next steps for the project, and the project’s scope
June 8, 2011 Education Session—Discussions about the results of the staff’s research and outreach related to risk disclosures, the next steps for the project, and the project’s scope

Background Information

In May 2010, the Board issued proposed Accounting Standards Update, Accounting for Financial Instruments and Revisions to the Accounting for Derivative Instruments and Hedging Activities—Financial Instruments (Topic 825) and Derivatives and Hedging (Topic 815). In addition to reviewing the comment letters received, the Board performed extensive outreach to obtain feedback on that proposed Update from all types of stakeholders, including users, preparers, auditors, and regulators.

Stakeholders’ feedback indicated that the risks that are inherent in a class of financial instruments and the way in which an entity manages those risks through its business operations should be instrumental in developing the reporting model for financial instruments. However, it has become clear that no measurement attribute would convey to users of financial statements complete information about a financial instrument’s inherent risks and the broader risks to which an entity is exposed. Additionally, attempting to represent all of the risks in an instrument with a single amount or measurement attribute is not possible. For example, the fair value of a particular financial instrument would reflect current market information about the risks inherent in that instrument but may not convey information about how that financial instrument contributes to the entity’s broader risk profile. The Board decided to pursue this project separately from the classification and measurement aspects of the project on accounting for financial instruments to address stakeholders’ concerns and to provide information that users have expressed is important but that may not be captured in one measurement attribute or another. The Board’s redeliberations of the May 2010 proposed Update are ongoing.

The important risks identified by users of financial statements during the Board’s outreach efforts were credit risk, liquidity risk, and interest rate risk. In July 2010, the Board issued Accounting Standards Update No. 2010-20, Receivables (Topic 310): Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses, with the intent of providing users of financial statements with decision-useful information about preparers’ credit risk exposure. This project is intended to provide users of financial statements with additional decision-useful information about an entity’s liquidity risk and interest rate risk. The Board also considered other market risks, such as movements in commodity prices, equity prices, and foreign exchange rates but decided that liquidity risk and interest rate risk were the areas of risk for which users expressed the greatest demand for improved disclosures.

*Contact Information

Jill Switter
Project Manager
jmswitter@fasb.org

Lauren Mottley
Associate Fellow
lmottley@fasb.org

Vicky Nguyen
Postgraduate Technical Assistant
vtnguyen@fasb.org