The International Accounting Standards Board is readying new revisions to its standards for accounting for impaired assets in response to pressure from European regulators who have threatened to upset support for International Financial Reporting Standards.
At a meeting with the European Union's Economic and Financial Affairs Council on Tuesday in Luxembourg, IASB Chairman Sir David Tweedie said the board would have an exposure draft out by July on an accelerated schedule of the revised IAS 39 standards on impairments and fair value classifications of financial instruments. He also pledged to seek input from the European Parliament, the European Union and other stakeholders before the final IAS revisions are ready by the end of the year. European officials, especially in France and Germany, had threatened to carve out exceptions to IFRS unless changes were made.
It is crucial for the achievement of global standards and the effective functioning and prosperity of the European, and indeed the global economy, that the EU remains committed to IFRS, said Tweedie.
He insisted that the IASB was addressing concerns raised by the European Commission about matters such as the need for guidance about fair value measurement in illiquid markets, clarification of whether credit derivative obligations include embedded derivatives, impairment rules related to available-for-sale instruments, and the possibility of reclassification out of the fair value option into other categories.
Tweedie added that the IASB would not simply adopt recent FASB revisions to fair value accounting standards, even though some in the European Union have complained that it would leave European banks on an unlevel playing field. He pointed out that the IASBs work on impairment would directly address the specific nature of EU concerns and would respond to a call by the G-20 for reduced complexity by decreasing the number of financial asset categories, leaving just a single impairment method. While he reiterated that the IASB was working closely with FASB to ensure consistency in standards for embedded derivatives, the IASB does not want to follow the same path for impairments.
Given the urgency of the fundamental issues surrounding IAS 39, we cannot afford the potential protracted back-and-forth between the IASB and the United States, which could undermine the comprehensive and desperately needed revision of this standard, he said.
Helen Brand, CEO of the Association of Chartered Certified Accountants, said her organization supports Tweedies approach to keeping the EU on board, but she also called for the IASB to coordinate its work with FASB.
"It would be disastrous if years of careful work by accountancy bodies globally to steer the world's economies towards convergence of International Financial Reporting Standards were unpicked, for political reasons, she said in a statement. "There is an urgent need for a new standard on financial instruments. The current standard, IAS 39, can produce overly complex financial statements and is difficult to apply. IAS 39's various amendments and options have reduced comparability between financial statements. The new standard should, if at all possible, be jointly developed by the IASB and the U.S. standard-setter to assist with acceptance and comparability. Proper due process and adequate consultation are also vital for this, even when the need for a standard is urgent. We support the timeline proposed by the IASB and look forward to contributing to the development of this replacement standard when the exposure draft is published in July."
