Bankers Object to Standards-Setting Process

The American Bankers Association has released a letter and white paper raising concerns over the process taken by the Financial Accounting Standards Board and the International Accounting Standards Board in their financial instruments projects.

“What the accounting boards are discussing now would be the biggest accounting change we’ve ever seen,” said ABA senior vice president Donna Fisher. “We are deeply concerned that the shortcuts being taken will result in flawed or inconsistent rules.”

The ABA expressed concern that the standard-setting process is being compromised, partly because the IASB’s timeline for completion may not allow U.S. companies to have a chance for appropriate due process in providing input.

“If the IASB finalizes its rule on accounting for loans and debt securities prior to FASB finalizing its rule, FASB will have to adopt the IASB’s rules or adopt a different rule which would result in divergence between U.S. GAAP and international rules,” the white paper stated. “The goal should be improving the current accounting rules that are in need of repair within a time frame that provides for due process and strives for international convergence.”

In the white paper, the ABA takes aim at recent proposals that call for an expansion of mark-to-market accounting in financial statements. The ABA said that bankers have long supported mark-to-market accounting for assets that are actively traded, but have opposed it for most of the traditional loans that banks make.

In a letter to FASB Chairman Robert Herz and IASB Chairman Sir David Tweedie, Fisher wrote, “Although we agree that a certain amount of change is urgently needed, the FASB and IASB direction may cause significant disruption, with both preparers and users of financial statements.”

Fisher recently wrote another letter to the two chairmen raising concerns about mark-to-market accounting changes (see Bankers Protest Latest Mark-to-Market Proposals). In her latest statements, Fisher reiterated her concerns. “Given the role that mark-to-market has played in exacerbating the current economic crisis, it is hard to understand the rationale for expanding it at this time,” she said. “Mark-to-market accounting lacks a sufficient level of reliability, which the current market has demonstrated.”