IASB Chair: Board Will Produce New Fair Value Standard This Year
IASB Chair David Tweedie said that the Board will adopt a new standard on fair value accounting this year for use in 2009 financial statements. In remarks to ECOFIN, he pledged that the comprehensive revision of IAS 39 will be done in a transparent manner after open consultation with stakeholders, including the European Commission and other regulators. The IASB will also work with FASB to assure a level playing field on a global basis. The IASB is committed to achieving a comprehensive solution that addresses fundamental issues of concern regarding IAS 39, a standard adapted from US equivalents and written into international standards some two years before the IASB was formed.
Last year the Board issued a report on fair value in illiquid markets, which was praised by the European Commission. The IASB Chair emphasized that IFRS and US guidance are consistent in this important area. Noting that there were concerns that the recent FASB staff position on fair value measurement may have created a new unlevel playing field, Chairman Tweedie reiterated that the IASB’s approach is consistent with FASB’s. As an extra precaution to ensure global consistency is maintained, in late May the IASB published an exposure draft on fair value measurement that directly incorporates the relevant FASB guidance.
On risk disclosures, in March 2009 the IASB published improvements to the disclosure requirements for fair value measurements and reinforced existing principles for disclosures about the liquidity risk associated with financial instruments This leaves the issues of impairment rules and reclassification out of the fair value option.
The original plan, based up significant input from stakeholders in Europe and elsewhere, was to resolve these two issues through a comprehensive revision of IAS 39. The IASB has now prioritized, in advance of other topics covered in the IAS 39 replacement, the portion of the comprehensive project concerning classification, measurement, and related impairment issues. The Board is fully committed to having the accelerated portion of the project completed for use by year end. In July, said Chairman Tweedie, the IASB will produce an exposure draft on a new standard that will address the impairment and reclassification issues raised by the European Commission.
The IASB’s approach, he said, is not to simply adopt the FASB staff position on impairment for the following four reasons. First and foremost, the IASB’s work on impairment directly addresses the specific nature of EU concerns. Second, the approach responds directly to the G-20 call for reduced complexity. The proposal will see a much needed reduction of the number of categories of financial assets and will leave the IASB with only one impairment method. Third, the proposal anticipates future problems associated with reclassifications by replacing restrictive tainting rules affecting held-to-maturity securities with measures aimed at transparency. Fourth, a comprehensive solution avoids the confusion and cost that would arise from repeated changes in reporting requirements. In this economic environment, the IASB feels that this unnecessary cost would not be welcomed by most financial and non-financial companies.
More broadly, the Mr. Tweedie noted that the IASB’s impairment rules are very different from FASB. Thus, on many issues EU financial institutions would not want us to adopt the US approach on impairment. For example, the IASB permits reversals of losses in a number of instances, where the US does not. Also, impairments under IFRS have different triggers than US GAAP. It is for this reason that even today, even after the FASB change, observed the chair, the US banking association is already arguing that EU banks have a competitive advantage.