Compliance Blog

Written By JiJi Bahhur, Regulatory Compliance Counsel

In a recent News Release, the Financial Accounting Standards Board (FASB) announced its proposed Accounting Standards Update (ASU), intended to improve financial reporting about certain risks inherent in financial instruments.  The stated purpose of the proposed guidance is to help users of financial statements better understand organizations’ exposures to risks and the ways in which those risks are managed.  Those affected by the proposal have until September 25, 2012, to comment on the matter. 

The purpose of the Update is to address concerns regarding how an organization discloses their exposure to risks related to items such as financial assets, liabilities, obligations, and other financial instruments.  To address these concerns, the ASU proposed new disclosures related to liquidity risk and interest rate risk.  Specifically:

• The proposed liquidity risk disclosures would apply to all public, private, and not-for-profit organizations, but the nature of the disclosures would be dependent on whether the reporting organization is considered a financial institution.  The disclosures are intended to provide information on the risks that will be encountered by the reporting organization when meeting its financial obligations. 

• The proposed interest rate risk disclosures would apply only to financial institutions.  The disclosures are intended to provide information about the exposure of financial assets and liabilities to fluctuations in market interest rates. 

The News Release does an excellent job breaking down the proposed amendments to the two disclosures. 

         â€œThe amendments in the proposed ASU on liquidity risk disclosures would require:

• A financial institution to disclose the carrying amounts of classes of financial assets and financial liabilities in a table, segregated by their expected maturities, including off-balance-sheet financial commitments and obligations.

• A financial institution that is also a depository institution to disclose information about its time deposit liabilities, including the cost of funding in a table or list during the previous four fiscal quarters.

• An organization that is not a financial institution to disclose its expected cash flow obligations in a table, segregated by their expected maturities, without being required to include the reporting organization’s financial assets in that table.

• All reporting organizations to provide their available liquid funds in a table, which includes unencumbered cash, high-quality liquid assets, and borrowing availability.

• All reporting organizations to provide additional quantitative or narrative disclosure of the organization’s exposure to liquidity risk, including discussion about significant changes in the amounts and timing in the quantitative tables and how the reporting organization managed those changes during the current period.

        The amendments in the proposed ASU on interest rate risk disclosures would require a financial institution to disclose:

• The carrying amounts of classes of financial assets and financial liabilities according to time intervals based on the contractual repricing of the financial instruments.

• An interest rate sensitivity table that presents the effects on net income and shareholders’ equity of hypothetical, instantaneous shifts of interest rate curves.

• Quantitative or narrative disclosures of the organization’s exposure to interest rate risk, including discussion about significant changes in the amounts and timing in the quantitative tables and how the reporting organization managed those changes during the current period.”   

For a full read of the proposed ASU, go here.  An effective date for this proposed guidance has not been issued at this time. 

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NAFCU Members.  NAFCU's Regulatory Affairs Team is in the process of drafting a Regulatory Alert on FASB's proposed Accounting Standards Update.  Once it is available, you can find it here.