The group overseeing the International Accounting Standards Board has written to President Obama and the other G-20 leaders saying it is following the G-20 recommendations for dealing with fair value accounting for loans, after banking interests charged that it was not.
The letter follows on the heels of a letter by the American Bankers Association to Treasury Secretary Timothy Geithner and Federal Reserve Chairman Ben Bernanke asking them to raise the issue at the Group of 20 meeting next week in Pittsburgh and curb efforts by the IASB and the U.S. Financial Accounting Standards Board to extend mark-to-market accounting to loans and debt securities, claiming that such a move would flout the recommendations of the G-20 (see Bankers Want G-20 to Rein in FASB, IASB).
The letter from Gerrit Zalm, chairman of the board of trustees of the International Accounting Standards Committee Foundation, defends the work of the IASB. He described how the trustees are stressing the urgency of revising the accounting standards for financial instruments, IAS 39.
In making their proposals and in order to provide transparency and reflect economic reality, the IASBs emphasis has been to define in a balanced and transparent way the appropriate criteria for classifying instruments to be measured at cost and fair value not to increase or decrease arbitrarily the use of fair value, he wrote. Whether there is a decrease or an increase of fair value will depend on a particular institutions business model and holdings. The IASB is not proposing that the loan book of banks will be held at fair value. Complementing the review of fair value accounting for financial instruments, the IASB is improving the accounting for loan-loss provisions, another area cited by the G-20.
Zalm noted that the IASB is working closely with regulators, financial institutions, investors and others to develop more forward-looking measures, such as an expected-loss model, rather than the incurred-loss model currently in place in International Financial Reporting Standards and U.S. GAAP. The IASB has already issued a discussion document on provisions and will release a final proposal in the fourth quarter, he added.
The letter is addressed to President Obama as host of the G-20 meeting and asks the meeting secretariat to distribute it to the other world leaders participating at the summit. In response to the G-20 leaders call for convergence toward a single set of high-quality, global, independent accounting standards on financial instruments, loan-loss provisioning, off-balance-sheet exposures, and the impairment and valuation of financial assets, Zalm noted that the IASB is working closely with FASB on convergence between IFRS and U.S. GAAP.
Zalm also provided an update on the governance of the IASB, noting that there is now a public accountability link to a monitoring board of financial market regulators. He added that the trustees have published proposals for further improvements in the governance and public accountability of the organization, and they are holding a series of public roundtables in London, New York and Tokyo.
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