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Financial Services

FASB Calls for Eliminating Available-for-Sale Category

Attempting to reduce equity securities to two classifications, the Financial Accounting Standards Board (“FASB”) plans to review feedback from regulators on how the change would impact their supervision of the banking industry. Planned ahead of FASB’s upcoming meeting, the feedback will help the standard setter decide which of the three classifications to eliminate.

FASB’s top choice for removal is “available-for-sale”, a category used for financial instruments assessed at fair value, but include changes in value noted in other income yet has no effect on net income. “Available-for-sale” also applies to instruments that the holder anticipates to keep unless urged to sell them because of a change in strategy or market conditions. Despite the call for removing “available-for-sale”, the FASB is expected to preserve the category for fixed income securities.

Meanwhile, bank regulators have voiced their concerns over eliminating “available-for-sale” as a category. Regulators fear the change may complicate certain supervisory requirements listed in the Dodd-Frank Act, such as the trading restrictions from the Volcker Rule, the rules for bank capital, and limits on trading in risky securities, since the rules utilize U.S. GAAP as a benchmark.

Cherry Bekaert will continue to monitor FASB’s decision and its upcoming meeting. For now, please visit the Firm’s Financial Services industry page to discover how we can assist your banking institution.