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Liquidity, interest rate risks to face further disclosure

Financial reports may soon have to contain greater disclosure of risk from int

The Financial Accounting Standards Board on July 27 announced some new proposals that would change the way companies disclose risks to investors.

The first proposal would require businesses to underscore to potential investors the risks of operating without adequate liquid funds. FASB would like financial institutions to classify these risks, along with their assets and liabilities, in a table format that includes off-balance-sheet items. Lack of liquidity among major banks was one of the primary causes of the economic collapse during 2008 and 2009.

FASB is also calling for increased disclosure of the risks faced by rising interest rates. Specifically, companies would have to relay to investors how interest rate hikes would affect profit margins. FASB is seeking comments on the new proposals, and will be accepting input through September 25.

"As part of the FASB's financial instruments project, stakeholders consistently requested improved disclosures about an organization's exposure to interest rate risk and liquidity risk," said FASB Chairman Leslie F. Seidman. "Therefore, the Board is proposing guidance that would help users of financial statements better understand organizations' exposures to risks and the ways in which those risks are managed."