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FASB ED expands fair value accounting for securities.

The Financial Accounting Standards Board issued an exposure draft proposing expanded use of fair value accounting for investments in debt and equity securities, while retaining the use of the amortized cost accounting for debt securities being held to maturity.

The ED, Accounting for Certain Investments in Debt and Equity Securities, classifies securities under three categories:

* Held to maturity applies to debt securities the entity has the positive intent and ability to hold to maturity. They would be reported at amortized cost.

Securities that might be sold in response to changes in interest rates, changes in prepayment risks, increases in loan demand or similar factors could not be considered as "held to maturity" under the proposal.

* Trading securities are debt and equity securities being held for current resale. They would be reported at fair value with unrealized gains and losses included in earnings.

* Securities available for sale are debt and equity securities that are not classified as either held to maturity or trading securities. They would be reported at fair value with unrealized gains and losses excluded from earnings and reported as a separate component of shareholders' equity.

The ED would supersede FASB Statement no. 12, Accounting for Certain Marketable Securities, and related interpretations and would amend Statement no. 65, Accounting for Certain Mortgage Banking Activities, to eliminate mortgagebacked securities from its scope.

If adopted as a final statement, the proposal would be effective for fiscal years beginning after December 15, 1993.

Comments on the proposal are due by December 8. Public hearings are scheduled for December 18 and January 7 and 8 at the FASB offices in Norwalk, Connecticut.

One free copy of the E D is available until December 8 from the FASB Order Department, 401 Merritt 7, P.O. Box 5116, Norwalk, Connecticut 06856-5116.
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Title Annotation:exposure draft
Publication:Journal of Accountancy
Article Type:Brief Article
Date:Nov 1, 1992
Words:296
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