The International Accounting Standards Board said it is taking steps in conjunction with the U.S.'s Financial Accounting Standards Board to address the crisis in the credit markets.
The IASB said it recognizes the need to clarify International Financial Reporting Standards to address market developments. It plans to work with FASB on developing a common approach to the valuation of assets that could be purchased under the Treasury Department's financial rescue plan, which Congress approved on Friday.
The IASB noted that U.S. generally accepted accounting principles permit entities, "in rare circumstances," to reclassify financial instruments in the form of securities from their trading portfolios (measured at fair value with changes through the income statement) to "held to maturity" (measured at amortized cost and subject to testing for impairment).
The IASB also noted that U.S. GAAP permits some loans that are not securities to be transferred from "held for sale" (measured at lower of cost or market with changes through the income statement) to "held for investment" (measured at amortized cost and subject to testing for impairment). Provisions aimed at counteracting abuse apply to these reclassifications.
The IASB said it would assess immediately any inconsistencies in how IAS 39 ("Financial Instruments: Recognition and Measurement") and U.S. GAAP address the issue of reclassifications and whether to eliminate any differences. The IASB will discuss these matters and will decide its position as part of a public meeting later this month. At that meeting, the IASB will assess the suitability of adopting the U.S. GAAP approach and whether adapting IFRS will provide relevant information to users of financial statements. The IASB will also consider the potential need to counteract abuse resulting from the ability to reclassify financial instruments.
The IASB noted the recent clarification made by the SEC's Office of the Chief Accountant and the FASB staff on fair value measurement. The IASB said its staff has reviewed the clarification and considers it consistent with IAS 39. The IASB said it would continue to ensure that any IFRS guidance is consistent with the clarification to help ensure comparability across borders.
The IASB also said it was willing to participate in any study of the impact of accounting in the credit crisis. The Treasury rescue bill includes a provision mandating that a study on the effects of mark-to-market accounting be produced in the next 90 days.
FASB has also issued a proposed FASB Staff Position that would amend FASB Statement No. 157 on fair value measurement to clarify its application in an inactive market by providing an illustrative example to demonstrate how the fair value of a financial asset is determined when the market for that financial asset is inactive (see FASB Speeds up Fair Value Advice).
In related news, the Association of Chartered Certified Accountants has released a policy paper, "Climbing out of the Credit Crunch," that blames the credit crunch on a failure in corporate governance at banks, which encouraged excessive short-term thinking and blindness to risks.
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