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Hoogervorst criticises US approach to impairment accounting

THE CREATION of a converged set of accounting standards for the impairment of financial instruments appeared as far away as ever after the head of the IASB criticised the approach favoured by the US.

Speaking at a conference for the Federation of European Accountants in Brussels, IASB chairman Hans Hoogervorst warned that the US’ more conservative approach to forward-looking impairment model for financial instruments could deter banks from lending.

Hoogervorst said the approach favoured by US counterpart FASB, which advocates upfront recognition of expected losses, could force banks to cut back on new lending to boost profits.

“Bank lending might become even more pro-cyclical than already is the case,” Hoogervorst said.

The two standard setters have been working together on an expected loss model for financial instruments after the current impairment model, based on incurred losses, was criticised for leading to overstated profits and understated liabilities.

Both the IASB and the FASB are committed to the creation of a more forward-looking impairment model. FASB recently cooled on the idea as divisions between the two were exposed at acrimonious meeting in July when FASB chairman Leslie Seidman pulled back from issuing a methodology for an expected loss approach to loan provisioning.

Hoogervorst expressed frustration at the delay and labelled their inability to come to a conclusion as “deeply embarrassing”.

“If this is going to unravel, I find it for us as standard setters … but also for you, I think it is deeply embarrassing that in three efforts, in which we have looked at ten alternatives, in which we have left no stone unturned, we are still not able to come up with an answer after three years. I would find that unacceptable,” Hoogervorst said during the meeting.

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