Tweedie allays EU fair value concerns

The head of the international accounting standard setter has sought to allay European concerns on its new fair-value rule, at a meeting of finance ministers today.

Sir David Tweedie, chairman of the International Accounting Standards Board, told a meeting of European finance ministers his revised standard, released following the downturn, should not increase the use of fair value.

The European Union placed pressure on the Sir David, in the wake of the crisis, to speed up the IASB’s review of IAS 39, the fair-value standard criticised for exaggerating the effects of the downturn.

At the time, Tweedie was told to have a standard ready for use in 2009 financial statements. The board released IFRS 9, the first part of its three-part review, in November 2009, however the EU has yet to endorse the rule despite protests from banks.

The fair-value rule forces assets to be valued at their market price. This led banks to write down their financial instrument assets as liquidity dried up in once active markets.

The new standard used a mixed-measurement model with most assets valued differently depending on their purpose. Most, used for trading, are measured at fair value, while contentious banks’ loan books, which are held to maturity, will be measured at their amortised cost.

So far Japan, Brazil, China, South Africa, New Zealand and Australia have taken steps towards adoption of IFRS 9. Europe's position, remains unclear.

In his speech, Sir David sought to address concerns which have so far held up EU adoption.

He acknowledged that “some have expressed the concern that IFRS 9 will result in an increase in the use of fair value” but said this was not his intention.

“Our aim was to find the right balance and establish appropriate criteria for determining whether to use cost or fair value,” he said.

"The IASB understands that, despite the earlier request for speed in completing this phase of the project, the European Commission now wishes to follow the normal endorsement procedure for IFRS 9… We also know that a number of EU policymakers, including the European Commission, the European Central Bank, and members of the Basel Committee, have raised issues regarding specific elements of the new standard.”

Read Sir David’s full statement: Chairman of the IASB addresses ECOFIN meeting