Members of the international Financial Crisis Advisory Group warned at a meeting in London that political pressure on accounting standard-setters posed a threat to the very existence of international accounting standards.
The group, which includes members of the International Accounting Standards Board and the U.S. Financial Accounting Standards Board, talked about recent actions that have forced the boards to alter the standards for financial instruments such as mortgage-backed securities to deal with the credit crisis. The IASB has come under pressure from the European Commission, as well as the French and German governments, to relax the IAS 39 standards on asset impairment, while FASB has been pressured by Congress to loosen FAS 157 standards on fair value and mark-to-market accounting.
There has been a lot of pressure, that both of us get, about an un-level playing field, said IASB Chairman Sir David Tweedie, according to a report on Financial Executives Internationals Financial Reporting blog.
Tweedie said that he prefers to work on long-term convergence efforts with FASB, rather than stopping to work on a short-term project on other than temporary impairments.
The pressure on the two standard-setters has created more than a crisis, and for the IASB in particular, a threat to the very existence of international accounting standards," said Financial Crisis Advisory Group chair and former SEC Commissioner Harvey Goldschmid (pictured). The financial crisis came about for reasons other than accounting. Clearly there were private sector failures, foolish risk decisions, regulatory failures. In the U.S. context, bank regulators, the SEC, FINRA all share part of the blame for what went wrong, not basic failures of the accounting, and scapegoating [accounting] is really a tragedy for all concerned.
Former SEC chief accountant Don Nicolaisen warned about harm to the public perception of the accounting profession. Accounting standards as written are always going to be refined we don't get it perfect but what we do have is an extremely cynical investing public, less trustful of regulators, government and business plenty of blame to go around, he said. To have them not trust accounting standards, I don't think would help the situation. It would put us in the dilemma of fueling that cynicism, [because of] unwillingness to accept responsibility by any group.
While FASB and the IASB are working on converging accounting standards, their approaches are diverging somewhat on their joint effort at improving the accounting for financial instruments. The IASB is trying to collapse four models of classification into two: financial instruments measured at fair value and at amortized cost. But FASB Chairman Robert Herz cautioned that the U.S. standard-setter preferred a different approach.
I want to be as positive, constructive and politic as I can be, he said. We desire to get to a common, good answer with the IASB. We will make that effort to do so, but some of the direction they are currently headed in is very, very preliminarily not to the liking or acceptance of our board. In particular, one of our principles [is], you can't significantly widen the cost bucket. We don't think that's a step forward in financial reporting. There may be ways to deal with it through disclosure. That would mean more burden on U.S. preparers. If there was widening of the cost bucket, we might want to have a quarterly fair value balance sheet.
Tweedie noted that the IASB does have an impairment test for cost-basis assets, a credit loss model based on incurred loss. Herz said that the two boards need to work intensively together to see if we can get to a common place.
Register or login for access to this item and much more
All Accounting Today content is archived after seven days.
Community members receive:
- All recent and archived articles
- Conference offers and updates
- A full menu of enewsletter options
- Web seminars, white papers, ebooks
Already have an account? Log In
Don't have an account? Register for Free Unlimited Access