Financial Regulatory Forum

INTERVIEW-Plan B may keep accounting convergence on track – IASB

By Reuters Staff
January 18, 2010

By Huw Jones

LONDON, Jan 18 (Reuters) – A patch-up solution to keep the goal of a single global accounting system on track may be needed due to differences over how standard setters are reforming a rule blamed for amplifying the credit crunch.

Two rival accounting systems could feature extra disclosures allowing analysts to make comparisons between different fair value rules, the chairman of the International Accounting Standards Board (IASB), David Tweedie, told Reuters Insider.

The G20 group of leading countries has set a mid-2011 deadline for converging the world’s main accounting rules.

It is a long-time goal of multinational companies which want to cut red tape and would also make it easier for international investors to compare companies from different countries.

Two of the world’s top standard setters are reforming their fair value or mark-to-market rule which requires banks to value some assets at the going rate. It led to huge writedowns at the height of the credit crunch, sparking calls in Europe to curb its scope.

The IASB has begun changing its fair value rule in a move which UBS analysts say will reduce its use. The U.S. Financial Accounting Standards Board (FASB), however, has signalled it wants to broaden the scope of its fair value rule.

“The U.S. believes we should have more at fair value. We have not found that,” Tweedie said.

“What we can do? Plan B. If we can’t get the same answer, can we at least get the income statements the same. We should be able to do that.”

“At least we could get net profit the same… It’s not all lost if we can’t agree.”

Plan B would be to provide sufficient information in the disclosures so that analysts could compare banks reporting under both accounting systems on a like-for-like basis.

“The world wants one standard but we can’t force them and nor can they force us. We have to look at what our constituents said and they are pretty clear they don’t want to go to fair value, that’s why we have come up with plan B,” Tweedie said.

The European Union has yet to endorse changes made by the IASB to curb fair value, a step needed to make it mandatory in the 27-nation bloc which applies IASB rules.

Some EU countries feel the scope of fair value should be cut further but Tweedie is reluctant as some non-EU countries are already implementing the change on a voluntary basis.

“They are accepted by quite a large proportion of people we have talked to. We knew what the issues were and we dealt with pretty much most of them,” Tweedie said.

The reform simplified the rule, as the G20 requested, so that assets are either valued at cost or at the going rate.

“It’s all right to say ‘oh well, we would like other things at cost’. The question is ‘what exactly do you want?’,” he added.

“We will discuss it but that does not mean to say we are going to reopen it,” Tweedie said.

Meanwhile, the IASB is waiting to see FASB’s draft reform of fair value, due this year, to gauge its impact on convergence.

“If they go to full fair value, I can imagine people will say ‘forget it’. If they are pretty close but with a little bit more fair value then there is a debate to be had. It depends what they come out with,” Tweedie said.

The IASB is also consulting on how to reform the way bank loan losses are accounted for as the G20 wants banks to recognise losses much earlier to lessen the need for more huge taxpayer bailouts.

Tweedie said the draft reform is likely to change before final adoption later this year.

“We have said OK this may be too complicated. See the direction we are trying to go. How do we operationalise this and make it simpler,” Tweedie said.

(Reporting by Huw Jones, editing by Stephen Nisbet)

((Reuters messaging: huw.jones.reuters.com@reuters.net; + 44 207 542 3326; huw.jones@thomsonreuters.com))

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