FASB proposes clarifications for financial instruments

Filed under: Financial instruments

The FASB has proposed amendments related to classification and measurement, credit losses and hedging. The proposed ASU provides clarifications for financial instruments – classification and measurement (ASU 2016-01), credit losses (ASU 2016-13) and derivatives and hedging (ASU 2017-12).

Applicability

• Companies that hold financial instruments in the scope of the credit losses standard
• Companies that hold equity investments
• Companies that apply hedge accounting

Relevant dates

• November 19, 2018 – FASB issued proposed ASU
• December 19, 2018 – Comments due on proposed ASU

Key impacts

• The estimate of expected credit losses would include expected recoveries of financial assets previously written off.
• Contractual extensions that are not unconditionally cancellable by the lender are considered when determining the contractual term.
• If an entity applies the measurement alternative and a transaction price for a similar or identical security is observed, the equity security should be measured at fair value under Topic 820.  

Related content

• KPMG's Handbook: Credit Losses
• KPMG's Handbook: Hedging
• KPMG's Q&A: Recognition and measurement