Fears for the International Accounting
Standards Board’s (IASB) credibility and future were alleviated
this month when the board’s chair, David Tweedie, emerged from a
meeting with European finance ministers with the IAS 39
improvements agenda intact and no further carve-outs imminent.
Tweedie was called before a European Union
Council of Economic and Financial Affairs (Ecofin) meeting in
Luxembourg to explain how the IASB is addressing what Ecofin called
“potential competitive distortions generated by recent changes in
US accounting regulation”.
The US Financial Accounting Standards Board
(FASB) rushed through changes to US GAAP relating to fair value
accounting and recognition of impairment losses on financial assets
in April. Calls had been growing within Europe for the IASB to make
similar changes.
Ecofin said the changes raised concerns about
possible distortions to the level playing field for European
entities.
Concerns for the IASB’s
future
Fears had been growing within the
accounting profession worldwide about what the fall out would be.
If the IASB caved to EU demands, it would destroy the board’s
credibility as an independent, international standard setter. If
the IASB stood by its plans for a proper due process, it was feared
Europe would make its own changes, undermining the IASB’s authority
and possibly spelling the end to international standards.
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By GlobalDataSeveral weeks before the Ecofin meeting, the
IASB decided to fast track its comprehensive review of IAS 39
Financial Instruments: Recognition and Measurement.
The review addresses the issues Ecofin was
concerned about. It will be completed in a staggered fashion and
the section that addresses classification, measurement and related
impairment issues will be addressed first. An exposure draft on
this section will be released next month and a final standard will
be ready for use for 2009 financial statements.
Tweedie told the Ecofin meeting the IASB will
stick to these plans. Reports indicate the ministers have accepted
this.
Tweedie stressed the current approach is
superior to the option of adopting the FASB staff position on
impairment because the IASB’s work on impairment directly addresses
the specific nature of EU concerns.
Adopting the FASB amendments would not create
a level playing field as impairment rules in IFRS and US GAAP are
very different, he added.
“It is for this reason that even today, after
the FASB change, the US banking association is already arguing that
EU banks have a competitive advantage,” Tweedie said. “Given the
urgency of the fundamental issues surrounding IAS 39, we cannot
afford the potential protracted back-and-forth between the IASB and
the United States which could undermine the comprehensive and
desperately needed revision of this standard.”
Reports suggest the French and German finance
ministers, who have been among the IASB’s fiercest critics,
accepted this assurance.
German Finance Minister Peer Steinbrueck told
reporters after the meeting that “IAS 39 will be reworked in the
coming months in such a way that it will be reliable and will be in
place for use by European banks for the 2009 results”.
French Finance Minister Christine Lagarde
reportedly made similar comments after the event.
The IASB reached two other milestones linked
to fair value accounting in the past month.
In late May, it published a draft standard
that would replace fair value measurement guidance contained in
individual IFRS with a single source of guidance. The draft
includes guidance on fair value measurement issued by the IASB’s
expert advisory panel in October last year and the recent guidance
issued by the FASB.
The board is also seeking comments on
accounting for the role of credit risk in liability measurement.
The IASB said that some see the outcome achieved when applying fair
value measurement to both assets and liabilities as
counter-intuitive.
The discussion paper has relevance to other
IASB projects, including accounting for financial instruments.
