Financial Instruments Projects

The Financial Accounting Standards Board (FASB) recently wrapped up its last major financial instrument project. The standards on classification and measurement and credit impairment will have the greatest effect on financial institutions with investment portfolios. The changes to hedging accounting could expand its usage for all entities, especially those that manage prepayable mortgage portfolios, use commodity components in their production process or hold municipal securities

Accounting Standards Update (ASU) 2016-01 makes targeted but significant changes relating to classification and measurement of investments in equity securities and presentation of fair value changes in certain financial liabilities.

The credit impairment standard creates a single impairment model—current expected credit loss (CECL)—for most financial assets, replacing the multiple models available under current U.S. generally accepted accounting principles. The new model requires an impairment allowance to be recognized at inception, representing the entity’s assessment of lifetime expected credit losses.

The hedging standard will make it easier to apply hedge accounting to risk management strategies where it’s too challenging or costly to apply today.

Jason Rader

National Industry Partner
Financial Services
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