A New Proposal Issued by FASB for Disclosure of Interest Rate and Liquidity Risk

Tuesday, July 3, 2012 Print Email

FASB (the accounting standard setter of the USA) has put forward amendments relating to disclosures of interest rate risk and liquidity risk. According to these amendments, a reporting entity will be required to adopt new quantitative as well as qualitative disclosures about risks regarding interest rate and liquidity. All entities are required to provide disclosures about liquidity risk and financial institutions are additionally required to disclose interest rate risk.

According to this proposal, non-profit organizations will have to provide disclosures in the annual financial statements; however, public companies will have to provide the disclosures in the interim financial statements in addiction to annual financial statements.

These amendments were proposed to address the concerns of stakeholders that some inherent risks of financial instruments and their effect on the risk exposure were not being fully reflected in the current measurement model used for these instruments. FASB believes that the breadth of these risks could only be communicated with the help of new disclosures.

If this proposal is approved and finalized, the requirements of the US GAAP will come closer to the current requirements of IFRS 7. However, some differences will remain regardless the approval of this proposal. Following are some of the notable differences:

  • “All entities” (not just “financial institutions”) are required by the IFRS 7 to disclose a maturity analysis of their derivative and non-derivative financial liabilities.
  • Another difference is that IFRS requires the above mentioned financial liabilities to be segregated by time intervals based on the “earliest period” in which the entity might have to pay the liability. US GAAP on the other hand uses the “expected period of maturity”.
  • “All entities” (not just “financial institutions”) are required by the IFRS 7 to disclose a sensitivity analysis for each type of market risk (for example interest rate risk) and its effect on the net profit and equity. 

The effective date of implementation of this proposal is not yet specified. The effective date of implementation will be established during re-deliberations. Comments on this proposal can be submitted to the FASB latest by September 25, 2012.

The proposal must be submitted to the FASB no later than September 25, 2012 

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