FASB Chairman's Opening Remarks On Status Of Financial Instruments Project
August 13, 2009
FEI Summary

Following are the opening remarks of Financial Accounting Standards Board Chairman Robert Herz at FASB's Aug. 13, 2009 board meeting, at which the Financial Instruments - Recognition and Measurement (FIRM) project was discussed.

"I want to try to clear up what seems to be some confusion or perhaps misinformation out there, about where we are in the process in this project and what our plans are.

Our plan is to work toward a comprehensive proposal on accounting for financial instruments, which, at this point, our best estimate is that  we would issue that proposal, that is, an Exposure Draft for public comment, either toward the very end of this year, or some time early next year.

The discussion we had here had at the public board meeting on July 15 was the beginning of that process, and I expect that we will have many more public meetings to discuss a whole host of issues that we need to address in developing a comprehensive proposal.

We recognize that the accounting for financial instruments is a broad and very important  topic that affects financial institutions and  many other entities, and there are numerous complex and difficult issues that we need to carefully examine, issues  relating to the measurement bases and techniques, to approaches to impairment and loan loss allowances, hedge accounting, presentation and disclosure, issues of operationality, cost-benefit considerations -  including whether you have a one size fits all model, or there ought to be differences, e.g. depending on sector or size of the entity, public vs. private, or some other split, and when and how any changes we make would be effective.

In the meantime, the IASB is also working on these issues, and they issued an ED in mid-July which deals with certain aspects of a potential new model. Later this year, they expect to issue further EDs dealing with impairment and hedging. They scheduled some public RTs for London, here, Tokyo, for first half of September, and we certainly will be participating in those, and we will plan to continue actively discussing all the issues with them as we both progress.

We also will be conducting extensive outreach in various other ways throughout this project, including discussion with investors, financial institutions, and other affected entities, auditors, regulators; I think it is likely we will conduct ct some field visits.

Next year, once we receive comments on our ED, what we do is: we identify all the key issues that come out of those comments, all the other input that we receive, then we go thru a redeliberation process, again to a series of board meetings, going thru those issues; experience indicates changes often are made based on the comments and input that we get.

And, only after we have gone thru that kind of very extensive and thorough public due process, would we issue a final standard, which based upon our current timetable, I at least could not see  being effective any earlier than 2011.

I wanted to make these points clear, because, we've been getting some calls from people who actually believed that today was going to be a final meeting before issuing an ED, and we've got lots more meetings to occur - both board meetings, and meetings with constituents - a lot more work to do."

Herz then asked Kevin Stoklosa, FASB's Assistant Director of Technical Activities, to speak about the status of  a detailed project plan for the fin instruments project, and whether it would be made available to the public.

Stoklosa explained:  

"The plan is to post detailed project plan (on FASB website) that includes the recognition and measurement piece, the impairment piece, as well as the hedging piece, and we are hoping to get that up on the website some time next week.

Also, the International Accounting Standards Board's ED is up there now [on IASB website], and we will put a comparison up there, based on the [boards'] decisions reached to date, and we'll keep updating that comparison as we go along, so  there should be a lot of information on the website shortly for constituents."

The board then proceeded discussed the items on its agenda for the August 13 meeting regarding the financial instruments project. Details on the results of that meeting can be found in FASB's Summary of Board Decisions.  

Prepared Aug. 13, 2009 by Edith Orenstein, director, Accounting Policy Analysis & Communications, Financial Executives International, based on listening to the webcast of the FASB meeting. This summary does not represent FEI opinion unless specifically noted above.