This edition of Defining Issues reports that the FASB recently issued a proposed Accounting Standards Update (ASU) that would change how entities determine the classification and measurement of financial instruments.
Under the proposed ASU, an entity would classify and measure financial assets based on both the contractual cash flow characteristics of the assets and the entity’s business model for managing the assets, rather than on their legal form (i.e., loans or securities).
Financial assets would be included in one of three classification and measurement categories:
(1) Amortized cost
(2) Fair value through other comprehensive income (FV-OCI)
(3) Fair value through net income (FV-NI), while financial liabilities generally would be measured at amortized cost.
The comment period ends May 15, 2013.