Liquidity Disclosures

The FASB is at it again, issuing an Exposure Draft on potential new Liquidity Disclosures. Normally when I see such topics from the standard setters, my heart goes out to my colleagues in the banking and financial services sector, but this time the FASB is hitting up every business with new disclosure requirements.  The requirements for all business include a new “available funds table” that shows all liquid funds available to the entity and an “expected cash flow obligations table” that shows cash flow payment obligations including recorded and off-balance sheet commitments.     

I found the timing of this ED interesting for two reasons.  First, this ED is really part of the overall Financial Instruments project, but for some reason the Boards (the IASB is also working on the Financial Instruments project) decided to go ahead and release an exposure draft covering only these disclosure requirements and not wait to issue a more comprehensive document on the entire Financial Instruments project.  Second, the FASB had just initiated work on a Financial Statement Disclosure project which, if complete, would provide valuable insight into the benefit and cost of yet more disclosures.

In fact, looking at these disclosures, one has to wonder what is being gained.  Public companies are already required to give similar information as part of the SEC contractual obligations table and MD&A discussions on liquidity. Most companies, public or private already disclose information on the timing of recorded long-term debt payments in their footnotes, and the most significant off-balance sheet obligation – leases – already has requirements about disclosing future minimum lease payment obligations by year.  The FASB even appears to acknowledge these potential overlaps by specifically asking about it in the questions they ask respondents to address in their comment letters. 

On first blush, the difference may be that the FASB wants management to base the disclosures on “expected maturities” rather than “contractual maturities.”  To put that in simple terms think of debt with a December, 2015 contractual payoff date.  Currently any reporting would be based on this hard and fast contractual date.  Under the proposed approach, management needs to take into account any potential plans to refinance the debt and possible defer the payment period.  It is also possible management will redeem the debt early and that would need to be reflected as well.  Can you imagine the fun we preparers will have debating the expected maturity timing with our auditors? 

Whether the FASB should have waited until it completed its Disclosure project before issuing a proposal for yet more disclosures is a mute point now that the document has been issued.  You have until September 25 to let the FASB know your feelings on this one.  I doubt it will get the number of letters that Revenue Recognition and Leases generated, but maybe that is the problem.  Everyone complains about disclosure overload, but when it comes time to make a point to the very institution causing the overload, no one seems to want to take the time to let them know enough is enough.

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