Accounting Board May Change its ‘Fair Value’ Rule

By | November 8, 2011

A global accounting rule rushed through after pressure from politicians during the financial crisis may have to be tweaked, sparking disruption for investors and companies.

The International Accounting Standards Board (IASB) had long planned a revamp of its “fair value” rule on how banks price assets on their books.

But in the face of calls from world leaders at the height of the financial crisis in 2008, the reform was split into three parts to speed things up, with the first, on classifying and measuring financial assets, becoming IFRS 9 in late 2009.

IASB board member Stephen Cooper told an accounting conference on Monday IFRS 9 may have to be changed as it tries to “converge” its rules with those used in the United States.

Differences between the IASB and the U.S. Financial Accounting Standards Board over aligning fair value and other rules pushed back convergence work due to have been completed by June this year.

“If we are going to consider the FASB position and think what we should do and ask constituents views, then implicitly we have to contemplate the possibility of reopening IFRS 9 and making changes. Otherwise, what is the point of consulting?” Cooper said.

“If FASB end up in a different position … and if we want to achieve convergence then somebody has got to change. No decisions have been taken on this,” Cooper said.

Changes may also be needed to make implementation easier for mortgage products in Austria and China. IFRS 9 may also have to be changed because of a new insurance accounting rule being looked at separately, Cooper said.

The IASB has also just proposed delaying mandatory use of IFRS 9 by two years to the start of 2015 as convergence work with FASB takes longer than expected.

The European Union, where IASB rules are mandatory for listed companies, has refused to approve use of IFRS 9 on an optional basis until all three elements have been finalized.

Companies in Australia, Japan, New Zealand, and South Africa have begun using IFRS 9, and changes would be disruptive for them.

Leaders of the Group of 20 top economies in the world agreed in 2009 there should be convergence of global accounting rules.

The G20 leaders said in France on Friday they wanted an update on convergence next April, piling more pressure on the two boards as deadlines slip.

While the FASB and IASB also relented to pressure from users for more time to study the rule changes being proposed, some delegates at Monday’s conference asked whether a date should be set to ending the distracting convergence work.

“When you set a date … you cause boards to rush,” FASB board member Russell Golden told the conference.

Cooper said the focus should still be on completing the projects for converging the main accounting rules.

The two boards have yet to reach a joint position on the second element of IFRS 9 which covers impairment of assets.

The IASB is more advanced than FASB on the final element of IFRS 9, hedge accounting. Golden said FASB was not devoting large resources to hedge accounting as impairment was top priority.

Successful convergence is key to persuading the United States to go a step further and adopt IASB rules outright. It is the only major economy not planning to use them.

The U.S. Securities and Exchange Commission was expected to say before the year-end what the United States planned to do. The announcement will also affect the speed at which countries like India and Japan adopt IASB rules.

(Editing by Dan Lalor)

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