CFA Institute along with its advisory committee, the Corporate Disclosure Policy Council (CDPC), recently held its annual meeting with the International Accounting Standards Board (IASB).
The meeting was an opportunity for CFA Institute staff and members of the CDPC to provide direct input to the IASB on a number of key projects, including Financial Instruments (Hedging and Impairment), Revenue Recognition, Leases, and Offsetting of Financial Assets and Financial Liabilities. We summarized key aspects of the comment letters issued by CFA Institute regarding the Revenue Recognition and Leases projects along with additional perspectives on matters arising from the IASB’s re-deliberations with the Financial Accounting Standards Board (FASB) on these issues. With regard to the Offsetting of Financial Assets and Financial Liabilities project, we voiced our overall support for the proposal which would reduce the netting of derivatives positions.
On the proposed Financial Instruments-Hedging standard, CFA Institute relayed its views on the proposed changes to the hedge accounting model, which will be formally articulated in a comment letter to be filed soon with the IASB and FASB. In general, CFA Institute does not support the IASB’s hedging proposal because:
· There is not a conceptual basis for the proposal;
· The objective and definition of hedge accounting is being changed;
· The IASB and FASB have not reached a consensus regarding the need for such extensive changes;
· Investors have not called for an expansion of hedge accounting as is proposed; and
· The overall benefits to users are questionable.
We also discussed the proposed Financial Instruments-Impairment Model issued jointly by the IASB and the FASB. CFA Institute will issue a comment letter shortly on the specific proposals; however, we used the opportunity to offer our initial position to the IASB. We reiterated that, with fair value measurements, there would be no need for an impairment methodology, and after considering the model, we questioned how it would sufficiently reflect the actual economics of credit losses. We expressed our concern that the model emphasizes more the timing of the recognition of expected losses rather than how they are actually to be computed. As a result, it appears to be focused on achieving an accounting rather than economic result, which would be focused on reflecting the economic reality of how credit impairments emerge over the life of the asset.
Similar to our meeting with the FASB in February, CFA Institute encouraged the FASB and IASB to consider similar issues across projects (i.e. “cross-cutting issues”) where the Boards may be reaching conceptually inconsistent decisions — including the time value of money, discount rates, expected loss and expected value techniques, and updating of assumptions at subsequent measurement — across projects to ensure conceptually consistent recognition and measurement decisions.
We also shared views on the Effective Dates and Transition Methods Exposure Draft — which would establish the effective dates for the newly proposed standards — and also very briefly emphasized the importance of the Financial Statement Presentation project to investors.
CFA Institute will continue to monitor the developments in each of these important projects and provide feedback to the IASB and the FASB as they re-deliberate the issues in the coming weeks.