FASB Chairman Hertz Gives Podcast of FAS 133 Rewrite
Thursday, May 27th, 2010FASB’s Chairmen, Bob Hertz, gave a podcast to discuss the exposure draft on Accounting for Financial Instruments (Formerly issued as FAS 133). Hertz indicated in the podcast that there are basically three elements addressed in the proposal:
- Classification and measurement – Whether an instrument will be carried at fair value versus amortized costs and whether the changes in fair value will be recorded in earnings or other comprehensive income (OCI). the proposed change would require those instruments held to maturity be continue to be recorded at amortized costs but now also report their respective fair values through OCI.
- Impairment of loans and debt securities – Proposed changes attempt to simplify current methodology by requiring just one model for all of these instruments. Currently there are various models for accounting for loan impairment (e.g. as currently found in FAS 5 – measuring collective impairment, FAS 114 – measuring individual impairment, SOP 03-3 – measuring impairment of purchased loans to name a few)
- Hedging of financial instruments and risks using derivative instruments. – Proposes a more simplified model for hedging as the current hedge model has been deemed to be onerous and overly complex.
Hertz indicated that the rewrite will hopefully improve the overall relevance and usefulness of information provided to investors and other users of the information.
Hertz also indicated that companies with a significant treasury operation would more than likely be impacted by the changes (e.g. some manufacturing companies).
In addition, companies that have a significant debt portfolio and retail companies that extend loans out to their customers will also be impacted.
Hertz’s podcast can be viewed at the FASB’s website.



