Volume 22, No. 6: Back To The Drawing Board, Again: Classification & Measurement
When the FASB issued its December 2012 exposure draft on accounting for impairment of financial instruments, it represented only “Part One” of a trilogy. (That’s one trilogy nobody in Hollywood will touch.) Part Two arrived in mid-February, and it really should be considered Part One: it deals with the classification and measurement of financial instruments, something that should precede the determination of financial asset impairments.
Classification and measurement had already been addressed once before in the FASB’s much maligned 2010 “all financial instruments at fair value” proposal. That proposal would have handled financial instrument classification and measurement in the same standard as the accounting for their impairment. After the rejection of the 2010 proposal, the FASB busied itself with finding an alternative model for both aspects of financial instruments accounting. The result was the impairment proposal, described in the February report “Financial Instruments Accounting: Back To The Drawing Board,” and the classification and measurement proposal described here.
The third installment of the trilogy will be a revamp of hedge accounting – but until the foundation for financial instruments accounting has been set, it makes no sense to devote time to hedge accounting. FASB might fare better with this classification and measurement proposal than it did in 2010. If it does, then they can get on with production of the last part of their “financial instruments trilogy.”