By Steve BurkholderThe Financial Accounting Standards Board completed substantive rulemaking decisions on impairment of financial assets, including the reporting of loan losses, and directed its staff to write up a final standard.At its March 11 meeting, FASB focused mainly on how banks and other companies are to shift to the planned standard on what is one of the more significant issues in accounting for financial instruments.The board hopes to issue the final standard on impairment in the middle of this year. It has not yet decided when it is to be effective.The financial crisis of 2008-09 drove home the importance of accounting for loan losses and for related securitized financial instruments, including collateralized debt obligations.FASB and the International Accounting Standards Board pursued a joint project on impairment for several years. They targeted a turn away from the “too little, too late” recognition by banks of credit losses, viewed as a major element in the crisis.However, FASB and IASB have diverged in their prescribed policies for accounting for impairments or credit losses. The international board issued its separate rules on financial instruments, including on expected credit losses, last July (IFRS 9, Financial Instruments).In a planned external review, the U.S. board will seek more feedback from preparers and users of financial statements before it issues its final standard on impairment. It also plans to formally weigh, at a public meeting, the costs and benefits of the new set of rules.FASB Decides Transition Issues At its March 11 discussions on impairment of instruments, FASB tentatively decided a range of questions pertaining to transition to the planned standard (proposed Accounting Standards Update, Financial Instruments–Credit Losses; Subtopic 825-15).The board responded to constituents' desire, in the area of “other-than-temporarily impaired”, or OTTI, debt securities, for additional guidance on how to shift to the forthcoming rules.FASB voted unanimously for a staff-recommendation to use a prospective transition method in accounting for debt securities that had previously been written down because of an other-than-temporary impairment.Under current generally accepted accounting principles, OTTI “is recognized as a direct write-down of the amortized cost basis of an available-for-sale (AFS) or held-to-maturity (HTM) debt security,” FASB's staff wrote in a meeting handout...