International accounting board rejects U.S. “fair value” rule plans

September 30, 2009

By Huw Jones
LONDON, Sept 30 (Reuters) – The top accounting rule setter said on Wednesday that U.S. plans to widen the scope of a rule blamed for amplifying the credit crunch was unacceptable, raising doubts over a 2011 deadline for a global set of accounting rules.

The G20 group of countries agreed on a June 2011 deadline last Friday to make it easier for investors to compare companies from different countries and cut red tape for listed firms.

But the International Accounting Standards Board (IASB) and its U.S. equivalent, the Financial Accounting Standards Board (FASB) have come up with different ways to reform their respective fair value rule in the face of political pressure.

The current rule requires companies to routinely value some assets like derivatives at the going price.

This can spark big writedowns and the need to raise fresh capital to meet regulatory requirements, as seen at banks during the credit crunch.

“We are obviously discussing it,” IASB chairman David Tweedie told Reuters Television on the sidelines of a financial conference in Gothenburg, Sweden.

“We put out our proposals for financial instruments which with puts some items — debt instruments, loan books — would be at cost, the rest at fair value,” Tweedie said.

“Their proposal is everything at fair value. I don’t think that is acceptable worldwide and in some segments of the United States either,” Tweedie said.

Tweedie signalled that the IASB, which sets rules used in over 100 countries, including the EU, would not follow a full fair value model but the way accounts are presented could help iron out differences.

IASB aims to have part of a reformed fair value rule in place by year end so banks can use it in their 2009 annual reports, a step called for by the G20 and which the FASB is unlikely to meet.

Accounting bodies fear differences over fair value will also make it trickier to meet the G20 deadline of June 2011 for a single set of global accounting rules.

“I think it’s quite hard. The important thing is there is a date and the fact that the U.S. has signed up to it at the G20,” said Ian Ball, chief executive of the International Federation of Accountants.

“But I am not sure the G20 have a view in mind on what is convergence. I suspect it’s removing major differences rather than a single standard,” Ball said.

Tweedie rejected accusations from policymakers that fair value amplified the crisis, saying the big problem was a failure to build up cushions during the good times, a step the G20 is seeking to remedy.

The International Monetary Fund said on Wednesday that two-thirds of the $3.4 trillion in global bank writedowns it expects between 2007 and 2010 will be due to loans, which are not marked to market, turning sour.

For the IASB fair-value draft guidelines, please click here.

For the U.S. FASB fair-value proposal, please click here.

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