US financial lobby fights fair value proposal

One of America’s most powerful financial lobbies has attacked proposed accounting measure rules which they say injects “craziness” into financial statements.

The American Banking Association, which represents the $13 trillion US banking industry, has urged its members to fight proposed fair value rules put forward by the US accounting standard setter, the Financial Accounting Standards Board (FASB).

FASB’s proposal would force banks to measure their loans at current market prices, which banks argue would promote volatility and is not appropriate for loans held to maturity.

“This is really a jaw-dropping proposal," Donna Fisher, senior vice president of tax and accounting at the Association told CFO.com.

The international fair value model allows banks’ to measure their assets differently, depending on their purpose. Loans that are held for trading have to be measured at their market price. Loans held to their maturity date are measured at amortised cost.

According to FASB, their proposals provided more useful information to shareholders.

"The objective...is to provide financial statement users with a more timely, transparent, and representative depiction of an entity's exposure to risk from financial instruments," FASB said.