Proposed FASB standards impacts Wall Street hiring plans

The International Accounting Standards Board (IASB) and its U.S. counterpart the Financial Accounting Standards Board (FASB), are both working through a number of projects towards a convergence of standards which include revenue recognition, financial instruments, insurance and leasing.

Through these various projects, the two standard-setters intend to improve financial reporting information for investors by aligning U.S. and international accounting standards. These projects are a significant move toward achieving a common accounting framework, a necessary step in the globalization of business and investment.

In May, the FASB voted to adopt two rules that would force financial institutions to bring more off balance sheet assets onto their books and expectations are high that the standards may be finalized and ready for implementation by the middle of 2013.

Add trillions of dollars to balance sheets

Because the consolidation of off-balance sheet assets increases risk-weighted assets, the rule will affect every firm that has financial instruments. Critics argue the rule will would add trillions of dollars to the balance sheets of financial institutions which would misrepresent the risks to which they are exposed.

The effects, though broad-reaching, will vary in degree depending on the extent financial instruments play in a firm’s financial position and operations. Bigger banks that hold a larger number of financial assets at amortized cost will be the most affected.

Affects human resources

While these changes are likely to require significant lead time to analyze and implement, especially for the larger companies, and will certainly affect everything from a firm’s contractual agreements to its human, think hiring plans, and other capital resources, key stakeholders from investors to finance executives, are showing increasing support for the changes to such standards.

The trend toward this increased transparency isn’t limited to U.S. banks. Governments around the world have already begun taking steps toward a single set of high-quality, globally accepted accounting standards. A chief goal of the effort is that investors will be able to read the financial statements of any company and be able to compare what they see to reports from other companies.

The FASB and the IASB have been working together toward convergence since 2002. While progress has been snail-like, with roadblocks and setbacks at every turn, the consensus of opinion is that U.S. financial reporting will undergo an unprecedented level of change within the next several years.