Crucial reforms to replace the controversial accounting standard IAS39 for
financial instruments is on track and will be completed by the end of the year,
the European parliament has been assured.
Speaking to the Parliament’s economic and monetary affairs committee, IASB
chairman Sir David Tweedie said the body was on target with changes that will
reduce the complexity of accounting for financial instruments.
Accounting for complex financial instruments has proved highly controversial
during the financial crisis with many blaming the accounting rules for the huge
writedowns in asset values made by financial institutions and therefore
worsening the credit crunch.
Sir David’s speech comes on the same day the IASB was attacked by the head of
France’s largest insurer, Axa, for not being accountable to politicians.
In a speech aimed at allaying fears that the IASB might be more intent on
following the lead of its US counterpart rather than meeting the concerns of its
European stakeholders, Sir David said there had been warnings against “blindly
adopting US standards”.
“We at the IASB do not want to be necessarily bound to US standards when we
believe that there is a better way to secure the confidence of international
capital markets and investors,” he said.
He added: “We believe that our approach is a superior one to one that would
merely adopt the US FASB Staff Position on impairment for the following reasons.
“First and foremost our work on impairment directly addresses the specific
nature of EU stakeholder and EU institutional concerns. Second, our approach
responds directly to G20’s call for reduced complexity.”
Sir David also said the IAS39 replacement would mean banks with more
traditional loan books would make little use of fair value, which has become a
hotly debated topic during the financial crisis.
Banks involved in trading or using complex financial instruments would “see a
great use of market pricing”.
“Whether there is a decrease or an increase of fair value will depend on
aparticular institution’s business model and holdings. The IASB is not proposing
that the loan book of banks should be held at fair value,” Sir David said.
Stressing the superiority of the IASB’s approach, Sir David said the model
reduced the number of categories under which to measure assets and leaves a
single impairment method.
Read full speech
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