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July 13, 2011

Barnier holds out on IFRS 9 as EU debt crisis deepens

European Internal Markets Commissioner Michel Barnier has rejected calls by a standard-setting chief to adopt global accounting rules that would ease the fallout from the Eurozone’s sovereign debt crisis.

Barnier said adopting IFRS 9 Financial Instruments will not be “the first solution to the problems” that Europe is facing at the moment and is holding out for the International Accounting Standards Board to finalise the final elements of IFRS 9 before making a decision on implementation.

The first phase of IFRS 9, which deals with classification and measurement, has been finalised while phase 2, (impairment) and Phase 3 (hedge accounting) are a work in progress.

IASB chairman Hans Hoogervorst urged the EU to begin implementing IFRS 9 at a meeting of the International Accounting Standards Boards’s trustees and its monitoring board, which includes Barnier. 

IFRS 9 allows some financial instruments such as bonds to be classified as amortised cost, which would lead to lower impairments, easing the cost burden. Under current accounting rules, IAS 39 Available for Sale, debt is automatically measured at fair value, which means impairment measurements are more sensitive to market prices.

At a time when rating agencies are downgrading the ratings of Irish and Greek sovereign debt, current accounting methods will lead to a rise in impairments.

“Under IFRS 9 impairments will still be painful but I am convinced it would be more timely done because the cliff effect is much less severe,” Hoogervorst said.

Hoogervorst believes IFRS 9 could help European banks avoid some of the broader market effects as the “financial crisis has come back with a vengeance”.

In response to Hoogervorst’s advice, Barnier said he would like to see how two other elements of IFRS 9 will be finalised before endorsing the standards.


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