FASB hoping to ease balance sheet volatility

The Financial Accounting Standards Board (FASB) has voted to push ahead with
a proposed rule aimed at easing the volatility in the income statements of
asset-backed and mortgage-backed securities investors (MBS).

These assets primarily affect community banks and insurance companies.

The rule change will affect FASB Statement No. 133, Accounting for
Derivatives Instruments and Hedging Activities, and allow companies not to
account for embedded derivatives that are associated only with prepayment risk.

Currently, investors must account for the fair value of their MBs every
quarter in their financial reports.

Under the new accounting proposal, the investor’s net income will only be
affected when it sells a security with an embedded derivative; interim changes
will not need to be recorded.

Related reading