The Norwalk, Conn.-based Financial Accounting Standards Board (FASB) on Tuesday issued an accounting standards update that aims to improve the recognition and measurement of financial instruments to provide investors with more useful information.
Among other things, the new guidance: requires firms to measure equity investments at fair value, and to recognize changes to fair value in net income; mandates the use of the exit price notion when measuring the fair value of financial instruments for disclosure purposes; and requires firms to provide separate presentations of financial assets and liabilities by measurement category and form of financial assets.
The FASB began a joint effort with the International Accounting Standards Board (IASB) began before the financial crisis to improve their standards on the accounting for financial instruments, and to achieve convergence between their standards, the new guidance explains.
It notes that the global economic crisis further highlighted the need for improvement in the accounting for financial instruments. The main objective of the new guidance is to “enhance the reporting model for financial instruments to provide users of financial statements with more useful information,” the guidance says.
“The new standard is intended to provide users of financial statements with more useful information on the recognition, measurement, presentation, and disclosure of financial instruments,” says Russell Golden, FASB chairman. “It improves the accounting model to better meet the requirements of today’s complex economic environment.”
The new guidance will take effect for public companies for fiscal years beginning after Dec. 15, 2017.