International Accounting Standards
Board (IASB) chair David Tweedie has attempted to allay European
concerns about increased fair value measurement, the bifurcation of
embedded derivatives, recycling and reclassification.

In an address to the EU economic and financial
affairs council (ECOFIN), Tweedie said European concerns about
expanded fair value in new classification and measurement rules are
unfounded.

When the IASB released its financial
instruments classification and measurement standard IFRS 9 last
year, it addressed only financial assets, not liabilities.

Tweedie stressed previously that the new
classification and measurement rules for assets do not introduce
more fair value measurement. He now says the IASB is moving in the
same direction for financial liabilities.

Addressing concerns

Tweedie said the IASB has addressed three other
concerns raised following the release of IFRS 9:

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  • The IASB will retain the bifurcation of
    embedded derivatives for liabilities. This change from the exposure
    draft addresses the contentious issue of the effects of changes in
    a company’s own credit standing and responds to concerns about
    increased use of fair value;
  • The new standard will not allow for recycling
    of realised gains and losses relating to strategic investments when
    an entity chooses to recognise changes in fair value in other
    comprehensive income; and,
  • The IASB will monitor the need for further
    guidance supporting the reclassification requirement.

One of the most contentious standard-setting
issues at present is the stark divide between the US Financial
Accounting Standards Board’s (FASB) position on financial
instruments classification and measurement, and the IASB
position.

The FASB appears set to propose a full fair
value measurement model, whereas IFRS 9 dictates that fair value or
amortised cost must be used in different circumstances.

Without providing details, Tweedie said the
IASB and FASB have “agreed common principles to help us to achieve
a common standard”.

“At the same time, the IASB is conscious of the
strongly held view of investors and other stakeholders
internationally that a combination of cost-based and fair-value
accounting remains appropriate for financial instruments,” he
added.

Tweedie said the two boards remain on track to
achieve the June 2011 target for converging IFRS and US GAAP.

He noted they are now meeting together monthly
and have held more than 100 hours of joint meetings since
November.

“We plan to publish seven joint proposals in
the next quarter. The boards individually will also propose other
changes to bring their own standards in line with each other,” he
added.

One welcome message from Tweedie is that the
IASB will continue its enhanced stakeholder engagement in
standard-setting and extend this to its agenda-setting.

The board was widely praised for its public
consultation prior to releasing IFRS 9, which was much more
extensive than previous consultations.

“We expect that the intensity of interaction
with stakeholders will remain the norm in the future,” Tweedie
said.