On The Horizon - February 19, 2013

Author:Ms Grant Thornton's Audit Practice Group
Profession:Grant Thornton LLP
 
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CURRENT PRACTICE ISSUE

Venezuela currency devalued

On February 8, 2013, Venezuela's government announced that it is devaluing the country's currency. Effective February 13, the fixed exchange rate changed from 4.30 bolivars to the U.S. dollar to 6.30 bolivars to the U.S. dollar. Under FASB Accounting Standards Codification® (ASC) 830-20-35-8, Foreign Currency Matters, an entity should not adjust its financial statements for a rate change that occurs after the reporting date. For example, a calendar-year reporting entity would not reflect the devaluation in its December 31, 2012 financial statements. Management should consider, however, whether it needs to disclose the impact of the devaluation in the 2012 financial statements or in MD&A.

FASB

All decisions reached at Board meetings are tentative and may be changed at future meetings. Decisions are included in an Exposure Draft only after a formal written ballot.

Decisions reflected in Exposure Drafts are often changed in redeliberations by the Board based on information received in comment letters, at public roundtable discussions, and from other sources. Board decisions become final after a formal written ballot to issue a final Accounting Standards Update.

ASU proposed on recognition and measurement of financial assets and liabilities

Recently the FASB issued proposed Accounting Standards Update (ASU), Recognition and Measurement of Financial Assets and Financial Liabilities, to improve financial reporting by providing a comprehensive measurement framework for classifying and measuring financial instruments. All entities that hold financial assets or owe financial liabilities would be affected by the proposed guidance. The comment period on the proposed ASU ends May 15, 2013.

The main provisions of the proposed guidance are discussed below.

Financial assets

At initial recognition, an entity would first determine whether the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest, defined as the contractual cash flow characteristics criterion. A financial asset with cash flows that are not solely principal and interest would be measured at fair value, with all changes in fair value recognized in net income.

The classification and measurement of a financial asset would be based on the asset's contractual cash flow characteristics and on the entity's business model for managing the asset, rather than on its legal form—that is, whether the asset is a loan or a security. Accordingly, financial assets would be classified into one of three categories:

Amortized cost (AC): For financial assets that pass the contractual cash flow characteristics criterion and are managed along with other financial assets within a business model whose objective is to hold assets for collection of contractual cash flows Fair value with qualifying changes in fair value recognized in other comprehensive income (FV-OCI): For financial assets that pass the contractual cash flow characteristics criterion and are managed along with other financial assets within a business model whose objective is both to hold assets to collect contractual cash flows and to sell assets Fair value with all changes in fair value recognized in net income (FV-NI): For financial assets that do not qualify for either of the two categories above Instruments that would subsequently be measured at AC and FV-OCI would initially be measured at transaction cost, while instruments that would be subsequently measured at FV-NI would initially...

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