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Sir David Tweedie, Chairman of the IASB, addressed the Economic and Monetary Affairs Committee (ECON) of the European Parliament on Monday (28th September 2009) to present how the International Accounting Standards Board (IASB) are responding to issues arising from the financial crisis.
In particular he focused his comments on issues raised by EU institutions. he picked out and summarised the work fo the Financial Crisis Action Group (FCAG) and detailed how the IASB was responding to the report they issued in July. More widely he highlighted how the IASB has in it's focus the three areas identified by the Financial Stability Forum: 1) the application of fair value in illiquid markets; 2) accounting for off balance sheet items; and 3) disclosures related to risk.
Sir Davd then outline how the IASB also recognises the importance of concerns raised primarily in Europe, particularly regarding the possibility of an unlevel playing field for US and European financial institutions. The European Commission articulated those concerns in letters sent to the IASB. He suggested that the IASB has acted on each of the four issues raised by the European Commission, on behalf of Member States and EU stakeholders, in the fourth quarter of last year. The Commission called for a standard-setting response on the following issues: (1) the need for guidance about fair value measurement in illiquid markets; (2) the desire for clarification regarding whether credit derivative obligations (CDOs) include embedded derivatives to ensure consistency between IFRSs and US GAAP; (3) the existing impairment rules related to available-for-sale instruments; and (4) the possibility of reclassification out of the fair value option into other categories. Sir David detailed recent changes in the position of the FASB that moved this agenda along - particularly in respect of the fair value measurement and impairment aspects of IAS 39. he highlighted why the IASB beleives their position on this is a superior one to that being proposed by the FASB. he suggests this will be the case for five reasons:
1. Their work on impairment directly addresses the specific nature of EU stakeholder and EU institutional concerns.
2. Their approach responds directly to the G20’s call for reduced complexity arguing that the proposal will see a much-needed reduction in the number of categories of financial assets and will leave us with a single impairment method.
3. The proposal anticipates future problems associated with reclassifications by replacing restrictive tainting rules affecting held-to-maturity securities with measures aimed at transparency.
4. The transition would allow a reclassification out of the fair value option into other categories.
5. A comprehensive solution avoids the confusion and cost that would arise from repeated changes in reporting requirements on the basis that in this economic environment this unnecessary cost would not be welcomed by most financial and non-financial companies.
In his speech he also mentioned that he will be speaking again to the EU Finance Ministers at their forthcoming meeting in October illustrating how accounting continues to be at the centre of the political responses to the economic crisis.
A full copy of his prepared remarks can be downloaded from the IASB website here |
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