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18 Mar 2009
The International Accounting Standards Board is to consider following its US counterparts lead in easing fair value accounting rules.
The US Financial Accounting Standards Board (FASB) is proposing to allow banks more freedom in the way they value financial assets. There would be more emphasis on using computer models rather than daily quoted prices where no active market is said to exist for a particular security.
In the US, a rule change could be brought about as early as April. The IASB will first put out two papers released by the FASB for comment to users of its standards in more than 100 countries.
The IASB has already softened its own fair value rule last autumn under pressure from the European Commission.
According to CFO.com there was tension during the last IASB board meeting over the quality of the US approach.
The US proposals give guidance on judging whether the market for a particular financial instrument is active - a controversial subject during the current economic crisis.
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Out of the frying pan into the fire?
So FASB wants to mark financial instruments to model rather than to market if 'no active market' exists. Hm, I thought one of the Enron problems was that assets were marked to model.
What's wrong with the lower of cost and net realisable value, even if cost is zero? It comes to much the same thing as marking to model for impaired assets, but it stops companies marking assets up to subjective values to create profits.
Posted by: Mike Page, 25 Mar 2009 | 00:00