The Financial Accounting Foundation advised President Bush and other U.S. and world leaders attending the G-20 summit to safeguard fair value accounting and the independent standard-setting process in a strongly worded letter.
The letter followed on the heels of another missive issued by the International Accounting Standards Committee Foundation last week with similar sentiments (see International Accounting Group Appeals to Bush). As with the IASC Foundation letter, FAF Chairman Robert Denham addressed his letter to Bush, but asked the meeting secretariat to circulate the letter to the other summit participants. He also CC'ed congressional leaders, Treasury Secretary Henry Paulson, Federal Reserve Chairman Ben Bernanke, SEC Chairman Christopher Cox and the other SEC commissioners. The FAF is the oversight organization for the Financial Accounting Standards Board.
"We understand that current issues relating to international accounting standards will be discussed at this meeting as part of a comprehensive examination of the global financial crisis," Denham wrote. "The FAF believes that the complex task of setting accounting standards is best done by the experts who comprise the FASB and International Accounting Standards Board. We believe the integrity and independence of the accounting standard-setting process is of critical importance to investors worldwide."
Denham (pictured) also weighed in on another controversy, the pressure recently exerted on the IASB to revise its fair value standards to avoid a carve-out by the European Union, which almost caused IASB Chairman Sir David Tweedie to quit (see Pressured IASB Chairman Considered Resigning).
"Political pressures have been brought to bear on the IASB to urgently review and revise its standards, particularly standards relating to 'mark-to-market' (fair value) accounting," wrote Denham. "The IASB has already departed from its normal due process to make one such revision in response to this pressure and is being asked by the European Commission to further review its standards for certain financial instruments and to complete its deliberations in time for year-end financial reporting."
Denham argued that the standard-setting process should not be tainted by political influence. "We are very concerned about recent efforts in the United States and abroad that contemplate political solutions to perceived flaws in certain accounting standards," he wrote. "We believe that any legislative outcome that would permit accounting standards to be overturned through a political process will create uncertainty, greatly undermine investor confidence, and dangerously compromise the credibility of financial reporting at a time when the capital markets are under great duress and in need of greater transparency."
At the G-20 summit, the world leaders agreed on a few vague statements related to accounting. They included among the near-term recommendations by March 31, "strengthening transparency and accountability by enhancing required disclosure on complex financial products; ensuring complete and accurate disclosure by firms of their financial condition; and aligning incentives to avoid excessive risk-taking." The leaders also agreed to "address weaknesses in accounting and disclosure standards for off-balance sheet vehicles." In addition, they promoted the internationalization of accounting standards by "reviewing and aligning global accounting standards, particularly for complex securities in times of stress."
In addition, the G-20 statement said, "The key global accounting standards bodies should work to enhance guidance for valuation of securities, also taking into account the valuation of complex, illiquid products, especially during times of stress. Regulators and accounting standard setters should enhance the required disclosure of complex financial instruments by firms to market participants. With a view toward promoting financial stability, the governance of the international accounting standard setting body should be further enhanced, including by undertaking a review of its membership, in particular in order to ensure transparency, accountability, and an appropriate relationship between this independent body and the relevant authorities."
Among the medium-term actions, the G-20 recommended, "The key global accounting standards bodies should work intensively toward the objective of creating a single high-quality global standard. Regulators, supervisors, and accounting standard setters, as appropriate, should work with each other and the private sector on an ongoing basis to ensure consistent application and enforcement of high-quality accounting standards. Financial institutions should provide enhanced risk disclosures in their reporting and disclose all losses on an ongoing basis, consistent with international best practice, as appropriate. Regulators should work to ensure that a financial institution's financial statements include a complete, accurate, and timely picture of the firm's activities (including off-balance sheet activities) and are reported on a consistent and regular basis. "
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