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April 28, 2009

IASB resists IFRS political pressure

The International Accounting Standards Board (IASB) has resisted political pressure to amend IFRS in line with recent US changes to fair value measurement and impairments of financial instruments.

The US Financial Accounting Standards Board (FASB) changes included guidance for determining whether or not a market is active and a transaction distressed, and guidance altering the recognition and presentation of other-than-temporary impairments.

The changes were welcomed by the American Bankers Association.

Center for Audit Quality executive director Cindy Fornelli said the FASB did a good job of getting a wide range of opinions in the 15-day consultation period.

“[They] proactively went out and tried to get a variety of people’s opinions to see if they got it right,” she said.

The FASB said it received more than 600 written comment letters, emails and held face-to-face meetings and other discussions with a broad range of constituents.

The changes were met with criticism by several other stakeholder groups, who asked the IASB to not act as hastily as the FASB, or in a “piecemeal” manner. The CFA Institute’s Investors Working Group said the political and special interest pressures placed on the FASB to change fair value accounting standards were “unacceptable and very troubling”.

The European Financial Reporting Advisory Group criticised the rushed nature of the changes. Other opponents included the Institute of Chartered Accountants in England and Wales (ICAEW), which said the FASB’s actions are “clearly detrimental to the agreed strategy of jointly developing a single set of high-quality accounting standards”.

“This piecemeal approach of rushing through changes to what really is quite clearly political pressure in the US is quite regrettable,” ICAEW head of financial reporting Nigel Sleigh-Johnson said.

European pressure

Following the FASB changes, the European finance ministers issued a joint statement calling on the IASB to “co-operate closely with the FASB in order to immediately address these issues… in order to avoid risks of competitive distortions emerging”.

But following a 30-day consultation period, the IASB decided to not make any immediate changes to IFRS.

The board concluded the FASB’s fair value guidance is consistent with existing IFRS guidance in the IASB’s expert advisory panel report on applying fair value measurement to financial instruments in distressed markets, and therefore a “level playing field” already exists in that area.

The IASB will include relevant parts of the FASB guidance in its exposure draft on fair value measurement, due to be published next month.

The IASB said it agreed with a widespread view among commentators that it should improve its impairment requirements. However, it did not believe an immediate response to the FASB guidance on impairment was necessary. Instead, it will take up the issue as part of its review of IAS 39 Financial Instruments: Recognition and Measurement.

A draft replacement for IAS 39 is due for release in six months.


Call for Herz to resign

A US academic has called for US Financial Accounting Standards Board (FASB) chairman Robert Herz to resign after the FASB altered the application of fair value measurement and accounting for impairments.

Edward Ketz, associate professor of accounting at the Pennsylvania State University’s Smeal College of Business, said that when accounting truth was at stake Herz compromised and enabled corporate managers to “use methods and vehicles by which they can cook the book”.

Ketz suggested the FASB had been under pressure from industry and Congress to ease accounting rules.

He said some politicians could have been threatening to take actions to dissolve the FASB if it did not make these adjustments and that the standard setter should have gone public, for example on television talk shows, to defend accounting.

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