FASB To Simplify Accounting For Separately Recognized Servicing Assets And Liabilities
The FASB today issued Statement of Financial Accounting Standards No. 156, Accounting for Servicing of Financial Assets. The new Standard, which is an amendment to FAS No. 140, will simplify the accounting for servicing assets and liabilities, such as those common with mortgage securitization activities.
Specifically, the new Standard addresses the recognition and measurement of separately recognized servicing assets and liabilities and provides an approach to simplify efforts to obtain hedge-like (offset) accounting.
The standard also:
- Clarifies when an obligation to service financial assets should be separately recognized as a servicing asset or a servicing liability.
- Requires that a separately recognized servicing asset or servicing liability be initially measured at fair value, if practicable.
Permits an entity with a separately recognized servicing asset or servicing liability to choose either of the following methods for subsequent measurement:
- Amortization Method
- Fair Value Method
FAS No. 156 permits a servicer that uses derivative financial instruments to offset risks on servicing to report both the derivative financial instrument and related servicing asset or liability by using a consistent measurement attribute – fair value.
“The Board specifically designed this Statement to simplify and encourage more consistent accounting in this area,” said Edward W. Trott, FASB member. “The Standard is the latest step in a series of projects aimed at reducing complexity while providing an approach that allows hedge-like accounting without having to deal with the complexities of Statement 133.”
Mr. Trott noted that today’s Statement is effective for all separately recognized servicing assets and liabilities acquired or issued after the beginning of an entity’s fiscal year that begins after September 15, 2006, with early adoption permitted. |
Corporate Accounting 
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