New Project to Amend Exceptions to Derivatives Accounting Rules

FASB has agreed to add a project to its rulemaking agenda to narrowly revise the exceptions to derivatives accounting rules so that certain emerging transactions are not captured. Many new arrangements are being captured as derivatives under today’s rules that users of financial statements do not consider to be derivatives, according to the discussions. As a result, there are questionable and counterintuitive answers in financial statements. Under the project, FASB will refine the scope of ASC Topic 815, Derivatives and Hedging, by creating a principle that excludes contracts with underlyings related to the operations or activities that are specific to one of the parties to the contact. “That approach could capture multiple types of arrangements were raised by stakeholders and address future transactions that share that common characteristics,” staff said. “Parties to the contract” would include any entity within a consolidated group. The board agreed that the rules would be subject to certain restrictions or guardrails. The decision comes after about a year of staff outreach to determine whether to amend ASC Topic 815. “I see this as a clarification matter because the idea that long-standing transactions can one day all of a sudden become derivatives doesn’t seem to make much sense,” FASB Chair Richard Jones said. “It doesn’t and I don’t think it’s a very fair playing field and I think it highlights if there’s the interpretation involved we’re got a flaw in our standard and if something can go on for so long with one accounting then all of a sudden one day become a derivative then that doesn’t make any sense.” Discussions will continue at a future meeting.


Reporting Framework for Stablecoin Issuers Proposed

The AICPA has published a proposed set of criteria for reporting stablecoins, which are digital assets backed by fiat currency, such as the U.S. dollar. The document, once finalized, will provide the first standardized framework of its kind to stablecoin issuers to report relevant information and will also provide the basis for attestation services for this type of cryptocurrencies. The AICPA Assurance Services Executive Committee (ASEC) developed the exposure draft, “Proposed Criteria for the Presentation of the Sufficiency of Assets for Redemption; Specific to Asset-Backed Fiat-Pegged Tokens.” “Stablecoins in particular have gained prominence for their role in trading, making them attractive to investors and businesses,” the association said. “However, there hasn’t been consistency in the information available to token holders for stablecoins. These new criteria aim to remedy this.” When the reporting criteria are finalized and published, the AICPA said that the framework can be when conducting an attestation engagement to perform procedures and write a report on the stablecoin issuer’s claims about the sufficiency of assets such as cash or cash equivalents, for redemption linked to asset-backed, fiat-pegged tokens. Comments are due January 29, 2024.


ISSB Chair Emmanuel Faber Reappointed to Second Term

International Sustainability Standards Board (ISSB) Chair Emmanuel Faber was reappointed to serve a second term after his first term concludes at the end of next year, the board’s trustee body announced on December 4. Faber will serve a second three-year term, from January 1, 2025, to December 31, 2027, according to an IFRS Foundation announcement aimed at giving “clarity to the market about stability and continuity of the ISSB’s leadership.” “Emmanuel and his strong leadership team have in the two years since we announced the creation of the ISSB delivered on all the commitments we set out at COP26 in Glasgow,” Trustee Chair Erkki Liikanen said in a statement. “The Trustees are grateful for the significant progress and pleased to confirm there will be stability and continuity in the ISSB’s leadership to build on the ISSB’s success to date.” Faber’s reappointment comes with full support of the IFRS Foundation Monitoring Board, which is composed of capital market authorities and provides a formal link between the IFRS Foundation and public authorities. The ISSB was established in November 2021 and Faber seated a month later. In 2022, the other 13 ISSB members were seated, including vice-chairs Sue Lloyd and Jingdong Hua, whose first terms will end in 2026.