FASB moves forward on financial statements and more

BVWireIssue #67-1
April 2, 2008

Last week the Financial Accounting Standards Board (FASB) issued an Invitation to Comment (ITC) on Reducing Complexity in Reporting Financial Instruments.  The ITC seeks input on whether the Board should add a project to simplify and improve standards for measurement of financial instruments and, if so, what kind of projects or approaches it should consider.  The ITC also includes and requests feedback on the International Accounting Standards Board’s Discussion Paper, Reducing Complexity in Reporting Financial Instruments, which seeks similar information on improving measurement of financial instruments.  Responses to both are requested by September 19, 2008.

FSP on convertible debt garners substantial negative comments.  At its board meeting last week, the FASB considered the proposed FSP APB 14-a, Accounting for Convertible Debt Instruments That May Be Settled in Cash Upon Conversion (Including Partial Cash Settlement).  The vast majority (46 out of 57) comment letters disagreed with some aspects of the proposed FSP.  Investment banks and other preparers—including Bear Stearns and Lehman Bros.—accounted for 39 of the comments; public accounting firms (6) and users (3) comprised the rest.   According to the meeting handout:

A significant number of respondents that opposed the proposed FSP asserted that (a) the current accounting treatment for such instruments (that is, application of the guidance in paragraph 12 of APB Opinion No. 14, Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants) is correct, (b) the accounting should not be changed for a subset of convertible instruments, and (c) a requirement to separate the liability and equity components of convertible debt instruments will increase complexity in financial reporting.

Moreover, substantially all comment letters requested postponing the effective date by at least one year to provide entities with more time to understand and implement the accounting guidance—which the Board agreed to do, even as it voted to move forward with finalizing the FSP.  To access all comment letters, click here.  

Please let us know if you have any comments about this article or enhancements you would like to see.