The Financial Stability Forum (FSF) this month presented a report
to G7 Finance Ministers and Central Bank Governors which advises
on: strengthening prudential oversight of capital, liquidity and
risk management; enhancing transparency and valuation; changing the
role and uses of credit ratings; strengthening the authorities’
responsiveness to risks; and implementing robust arrangements for
dealing with stress in the financial system.

Clarity required

Under the recommendations to enhance transparency and valuation,
the FSF suggested that “the build-up and subsequent revelation of
significant off-balance sheet exposures has highlighted the need
for clarity about the treatment of off-balance sheet entities and
about the risks they pose to financial institutions”. Therefore,
the FSF argued, the IASB should improve the accounting and
disclosure standards for off-balance sheet vehicles on an
accelerated basis and work with other standard-setters toward
international convergence.

The report also noted that recent market turmoil has exposed
potential weaknesses in valuation practices and disclosures, and
difficulties associated with fair valuation in circumstances where
markets have become unavailable. The report recommended that
international standard-setters should enhance accounting,
disclosure and audit guidance for valuations.

The FSF noted that the IASB will set up an expert advisory panel in
2008 to look at strengthening global standards to achieve better
disclosures about valuations, methodologies and the uncertainty
associated with valuations. The IASB will also enhance its guidance
on valuing financial instruments when markets are no longer
active.