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September 28, 2010

FASB financial instruments model too complex

The US accounting standards setter’s efforts to reduce complexity in reporting financial instruments has fallen short, a UK institute claims.

The Financial Accounting Standards Board’s (FASB) proposed financial instruments model includes both amortised cost and fair value information in the balance sheet.

However, the Institute of Chartered Accountants for England and Wales (ICAEW) thinks the FASB proposal actually increases complexity and complicates convergence with international rules.

ICAEW financial reporting faculty head Nigel Sleigh-Johnson said the model will make statements harder to read, information more difficult for investors to understand and it will be more costly for businesses.

“Simplification of the standards for financial instruments accounting is a key priority, and an objective endorsed by the G20 governments. The FASB’s proposals are surely pulling in the wrong direction,” Sleigh-Johnson added.

The International Accounting Standards Board (IASB) has chosen a mixed measurement model meaning financial instruments can be stated at either amortised cost or fair value in the primary financial statements.

Due to the IASB and the FASB taking different approaches to financial instruments classification and measurement, questions are being raised as to whether the two boards can agree on a final standard.

 “We are longstanding supporters of the aim of developing a single set of accounting standards for use globally, but the focus of the IASB must remain very firmly on high quality financial reporting and cost benefit considerations. Achieving convergence, whether between IFRS and US GAAP, or IFRS and any other GAAP, should play second fiddle in the standard setting process,” Sleigh-Johnson said.


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