The Financial Accounting Standards Board (FASB) recently issued a proposed Accounting Standards Update, with the goal of addressing confusion regarding the scope of transactions subject to disclosures about offsetting assets and liabilities on the balance sheet. The update noted that stakeholders had raised questions about whether the FASB intended to require disclosures across such a broad range of transactions, as this would lead to a major increase in accounting compliance
At the core of the issue is a previously introduced FASB standard that broadened the definition of financial instruments. Update 2011-11, issued in December of last year, was put into place as a result of a collaboration with the International Accounting Standards Board, with the goal of facilitating transparency and comparability between U.S. Generally Accepted Accounting Principles and International Financial Reporting Standards. Specifically, the update called for an accounting legislation
tweak that required enhanced disclosures regarding particular financial and derivative instruments.Balancing accounting compliance costs with discernible value
Following the introduction of Update 2011-11, many companies realized that a multitude of contracts come with standard commercial provisions which constitute a master netting arrangement. These provisions considerably boost compliance costs without introducing discernible value to financial statement users. The new clarification aims to reduce these expenses, thereby taking some of the stress off users.
As the update put it, "The board believes that the scope clarification contained in this proposed update will reduce the costs associated with implementing the disclosures, while still providing users of financial statements with the requested comparable information for those instruments."
FASB technical director Susan M. Cosper explicitly defined the aim of the proposed updates in a recent statement.
"The goal is to reduce unintended costs while providing investors and other users with the information they need to understand the extent to which certain financial instruments are offset pursuant to master netting arrangements," she said
.Stakeholders encouraged to weigh in
The FASB has made the proposed update open to comment for the following few weeks. Stakeholders can submit questions, concerns and other types of input via an electronic form available on the Exposure Documents Open for Comment section of the FASB website, email a written letter to the organization or mail written feedback to the FASB's Norwalk, Connecticut, headquarters.
Read the full exposure draft here