On January 31, 2011, the FASB and IASB (the boards) published a supplementary document, titled by the FASB Accounting for Financial Instruments and Revisions to the Accounting for Derivative Instruments and Hedging Activities: Impairment(the supplement)1, to solicit views on a converged model to account for impairments of certain financial assets managed in an open portfolio.The supplement is a likely precursor to an exposure draft of a proposed accounting standard. It reflects the boards' consideration of feedback received on impairment models included in exposure drafts on financial instruments accounting issued by the IASB in November 2009 and by the FASB in May 2010.
Through the boards' outreach on the financial instruments project, as well as feedback from groups such as the G-20 and the boards' Financial Crisis Advisory Group, impairment has been cited as the area in financial instruments accounting that is most in need of repair and where convergence is essential. The supplement acknowledges the importance of reaching a common solution to accounting for impairment of financial assets and at least partly satisfying each board's original objectives for impairment accounting set out in their exposure drafts. The supplement incorporates the IASB's objective to reflect the relationship between the pricing of financial assets and expected credit losses through a loss allocation method. It also addresses the FASB's objective related to the adequacy of the allowance by establishing a minimum allowance or "floor."
Public comments on the supplement are due by April 1, 2011. The boards plan to jointly redeliberate the proposals in the supplement based on the feedback received on it. The IASB expects to issue a final impairment standard by June 2011, and the FASB expects to issue a final Accounting Standards Update that includes the credit impairment model in 2011.
This Dataline highlights the key provisions of the common proposal in the supplement.
1The IASB's version of the supplement is titled Financial Instruments: Impairment.