· The EBF has significant concerns about the approach adopted by the FASB. There is no reflection of business practices and the proposed requirement will not reduce complexity, improve transparency or be acceptable to most users of financial statements.
· The EBF continues to support the convergence objective, but not at the expense of quality. Adverse impact on the decision on equivalence and mutual recognition of IFRS and US GAAPs must be avoided.
· Financial instruments accounting should be based on a mixed measurement model.
· The EEBF supports the classification criteria that differentiate between financial instruments measured at amortized cost and those measured at fair value, based on the business model used by the entity. Amortized cost should be required for instruments held for the collection/payment of contractual cash flows which should be complemented with an impairment model allowing earlier recognition of credit losses compared to current incurred loss model. Reclassification should be allowed or even required if the business model for a particular instrument portfolio has changed as a consequence of external events.
· Fair Value Option (FVO) should be available. Own credit changes on FVO liabilities should be moved out of the P&L. Entities should have an option either to bifurcate the embedded derivative or to carry the whole financial instrument at fair value with changes in profit and loss.
· An impairment model for financial assets should be based on an expected loss approach over the life of the portfolio where estimates of the losses should reflect all existing information. Any model should be applicable to open portfolios. Expected loss allowances should be amortized over the life of the portfolio. Changes in estimations should be treated symmetrically with initial estimations.
· The EBF supports the removal of the quantitative assessment of hedge effectiveness and the adoption of a qualitative analysis to assess effectiveness. However, unless the FASB reconsiders the types of risk eligible for hedging for accounting purposes, the practical benefit of the proposals is limited. Hedge of a portion of a financial instrument’s contractual cash flow should be allowed.
· The hedged item should be permitted to include a net exposure comprised of financial assets, financial liabilities and derivatives. The FASB should incorporate the IASB recent deliberations on macro hedging into the proposal.
· The EBF disagrees with the proposal to prohibit the voluntary dedesignation of hedge accounting relationship.
© EBF
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