Financial Regulatory Forum

EXCLUSIVE-U.S., global differences over fair-value accounting can be reconciled – IASB chief

By Reuters Staff
October 6, 2009

tweedie_thb By Emily Chasan
NEW YORK, Oct 6 (Reuters) – Proposed changes to mark-to-market accounting rules are likely to look similar on both sides of the Atlantic in the end, despite a current controversy about how far to expand the rules, the top global accounting rulemaker said.

Sir David Tweedie, who heads the London-based International Accounting Standards Board (IASB), told Reuters late Monday that while he differs with U.S. accounting rulemakers on changes that would force companies to put market values on a broader array of financial assets, he wants the final standards to be “as close as we possibly can.”

“I think there’s a feeling that we’re moving apart,” Tweedie said. “Though we have different ideas about how we are going to deal with financial instruments at the moment, that isn’t to say we’re not trying to get together.”

The U.S. Financial Accounting Standards Board (FASB) has proposed that all financial instruments should be valued at market levels, a move that could expand fair value accounting to loans and other financial assets.

Some investors and banks have blamed an expansion of mark-to-market rules in recent years for accelerating the financial crisis, and oppose using the measurement technique for loans because they say they are rarely traded.

The IASB, which aims to have part of its reformed fair value rule in place by the end of the year so companies can use it in their 2009 financial statements, has split from FASB and said it will not follow a full fair value model.

Rather, the IASB has said that loans and other assets that are held for very long periods of time may be best valued based on expected cash flows.

“The message we are getting — and this is from investors — is that they would rather have the instruments recorded by the way companies are managing their cash flows,” Tweedie said, noting some U.S. investors appear to have different demands than investors in Europe and Asia.

“Our constituents say that is how they want to do it, because you can predict the cash flows,” Tweedie said.

Tweedie said he hopes that under the final rules, FASB and the IASB can ensure the changes to fair value do not yield different net income figures for companies that use International Financial Reporting Standards (IFRS) or U.S. Generally Accepted Accounting Principles (GAAP).

For example, if FASB requires U.S. companies to put market values on loans, then companies using IFRS may be required to disclose fair value in brackets next to their cash flow estimates, Tweedie said.

“There are ways you can still reconcile… so you could instantly work out the FASB answer,” Tweedie said.

The FASB and IASB’s project on financial instruments is one of a series of projects the two boards are trying to finish by June 2011 to converge most major areas of GAAP and IFRS.

The U.S. Securities and Exchange Commission, had said it will begin looking again this fall at a proposed roadmap to move U.S. companies to IFRS by as soon as 2014.

Seventy percent of U.S. chief financial officers and other finance professionals want the SEC’s proposed roadmap approved now, according to a survey of more than 150 finance professionals issued by Deloitte [DLTE.UL] on Tuesday.

About 20 percent of those polled said they want the roadmap approved “as is” while 51 percent said the roadmap should be approved, but the SEC should delaying the switch to 2015.

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

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

(Reporting by Emily Chasan; Editing by Tim Dobbyn)

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