In the current economic environment, its difficult to obtain a bank loan or a line of credit. Businesses fortunate enough to have a line of credit worry about having their line pulled as bank credit managers continually tighten their lending requirements to keep their reserve ratios up with regulatory demands. A recently proposed Accounting Standards Update (ASU) No. 1810-100 (PDF) issued by the Financial Accounting Standards Board (FASB) could make it more difficult to obtain a bank loan.
ASU No. 1810-100, Accounting for Financial Instruments and Revisions to the Accounting for Derivative Instruments and Hedging Activities — Financial Instruments (Topic 825) and Derivatives and Hedging (Topic 815) would, according to the FASB, result in common fair value measurement and disclosure requirements in U.S. GAAP and IFRS, including word changes to describe the principles and requirements.
The impairment test and expanded use of fair value measurements in the proposed ASU 1810-100 has caused a stir in the banking industry. Banks say that changes in the accounting standards will require them to beef up their reserves and scale back loan originations. If this happens, businesses may find it even more difficult to get a line of credit.
Comments on this proposed standard is due September 7, 2010
