Ensuring accounting standard setters are
independent from undue commercial and political pressures is one of
the 23 recommendations to standard setters in a report from the
Financial Crisis Advisory Group (FCAG).

The group of 18 high-level experts was formed
last year at the request of the International Accounting Standards
Board (IASB) and the US Financial Accounting Standards Board to
consider financial reporting issues arising from the crisis.

The group’s 37-page report addressed four key
principles:

• ensuring effective financial reporting;

• understanding the limits of financial
reporting;

• converging accounting standards; and

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• ensuring standard setter independence and
accountability.

Recommendations for ensuring effective
financial reporting included that the boards should explore
alternatives to the incurred loss model for loan loss provisioning
that use more forward-looking information. These alternatives
should include an expected loss model and a fair value model.

The FCAG said the boards should clearly
acknowledge in their joint conceptual framework project the
limitations of financial reporting. They noted that users should
also be aware of such limits and never suspend their own judgement
or due diligence.

The group urged national governments,
financial market participants and the global business community to
actively support the development of a single set of high-quality
accounting standards.

The FCAG said to protect its independence from
undue influence, the IASB needs a permanent funding structure.

Also, to bolster the authority of the
International Accounting Standards Committee Foundation monitoring
board, its composition should be broadened geographically to
include securities regulators from a wider range of nations.

On the release of the report, FCAG co-chair
Hans Hoogervorst stressed that accounting was not a root cause of
the financial crisis, but that it had an important role to play in
its resolution.

Co-chair Harvey Goldschmid said, as the report
emphasised, improved financial reporting will help restore the
confidence of financial market participants and thereby serve as a
catalyst for increased financial stability and sound economic
growth.