03 October 2008
The International Accounting Standards Board (IASB) today announced the current status of its response to the credit crisis and its next steps.
The IASB has already taken a number of actions to address issues related to the credit crisis. In publishing additional steps, the IASB reaffirms its commitment as a standard-setter to bring transparency to investors and other users of financial statements.
In responding to the credit crisis, the IASB recognises
the need to clarify International Financial Reporting Standards (IFRSs)
to address new market developments.
The IASB’s response has
primarily focused on the recommendations of the Financial Stability
Forum (FSF), which had the support of the Group of Seven (G-7) Finance
Ministers. (A summary of the IASB’s response to the FSF is included in
the Notes to Editors.)
The IASB is closely monitoring developments in the United
States and other jurisdictions to avoid unnecessary inconsistencies in
accounting treatments under IFRSs and US generally accepted accounting
principles (GAAP). In doing so, the IASB commits to undertake the
following: 1. Consistency of fair value measurement guidance between IFRSs and US GAAP: The IASB notes the recent clarification made by the Office of the
Chief Accountant of the US Securities and Exchange Commission (SEC) and
the staff of the Financial Accounting Standards Board (FASB). The
clarification is not an amendment of SFAS 157 Fair Value Measurements,
but rather provides additional guidance for determining fair value in
inactive markets. The IASB staff has reviewed the clarification by the SEC and FASB
staff and considers it consistent with IAS 39 Financial Instruments:
Recognition and Measurement. (See http://www.sec.gov/news/press/2008/2008-234.htm for the clarification made by the Office of the Chief Accountant of the US SEC and the FASB staff.) The IASB will continue to ensure that any IFRS guidance is
consistent with the clarification that has been provided by the US SEC
staff and the FASB staff for those companies using US GAAP. This will
help ensure comparability across borders. 2. Consideration of the possible impact of the
US Emergency Economic Stabilization Act of 2008 and other similar
programmes internationally on the valuation of assets and liabilities: 3. Immediate consideration of the ability to reclassify financial instruments: The IASB also notes that US GAAP permits some loans that are not
securities to be transferred from Held for Sale (measured at lower of
cost or market with changes through the income statement) to Held for
Investment (measured at amortised cost and subject to testing for
impairment). Provisions aimed at counteracting abuse apply to these
reclassifications. The IASB will assess immediately any inconsistencies in how
IAS 39 and US GAAP practice address the issue of reclassifications and
whether to eliminate any differences. The IASB will discuss these
matters and will decide its position as part of its public meeting
during the week of 13-17 October. At that meeting the IASB will assess the suitability of
adopting the US GAAP approach and whether adapting IFRSs will provide
relevant information to users of financial statements. The IASB will
also consider the potential need to counteract abuse resulting from the
ability to reclassify financial instruments and related areas of
accounting to ensure consistency between practice in the United States
and in those jurisdictions using IFRSs. 4. Willingness to participate in any study on the impact of accounting in the credit crisis:
Working with regulators, investors, and industry, the IASB
will draw lessons from the credit crisis as it moves forward with its
project to reconsider IAS 39. Consistent with discussions
in the United States, the IASB will be willing to assist in any study
that examines the quality of existing fair value information provided
to investors and any impact of financial reporting on the credit
crisis.
On 16 September, the IASB staff issued draft guidance on fair
value measurement of financial instruments in markets that are no
longer active.
The IASB will work closely with the FASB to develop a
common approach to issues related to the valuation of financial assets
and liabilities resulting from purchases made through the US Emergency
Economic Stabilization Act of 2008 and any other similar programmes
internationally, if and when these programmes are initiated.
The IASB notes that US GAAP permits entities, in rare
circumstances, to reclassify financial instruments that are in the form
of securities from their trading portfolio (measured at fair value with
changes through the income statement) to ‘held to maturity’ (measured
at amortised cost and subject to testing for impairment).
The IASB recognises the need
to continue to examine IFRS accounting principles for financial
instruments. Earlier this year, the IASB published a discussion paper, Reducing Complexity in Reporting Financial Instruments . This discussion paper is the starting point for considering a possible replacement for IAS 39.
