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from Margaret Doyle:

IASB sticks to its fair value guns

LONDON, July 15 (Reuters) –David Tweedie, chairman of the International Accounting Standards Board, has responded to demands that he revise the controversial standard on financial instruments by strengthening controversial “mark to market” accounting. He should be careful he does not derail progress towards global accounting standards in the process.

The existing standard, IAS39, allows banks and insurers to classify financial instruments and measure impairment in many ways. Tweedie wants just two measurement bases – amortised cost and fair value -  and one impairment method for amortised cost.

Mark to market (fair value) accounting was sorely tested in the financial fire, because it obliged banks and insurers to take writedowns, shrinking their capital bases and requiring some to dump assets. This depressed values still further, triggering more writedowns and forced sales.

Fair value accounting is based on the premise that markets are efficient. This was an article of faith in the finance industry but since the crisis broke it has been widely questioned, except in the Tweedie Standards factory.