The Trustees of the IASC Foundation, the oversight body of the International Accounting Standards Board (IASB) and the host of the upcoming meeting of leaders of G20 countries on 24-25 September in Pittsburgh, has announced in a letter addressed to the member countries that the IASB has already established an enhanced technical dialogue with prudential supervisors, market regulators and other stakeholders regarding the development of new standards.
The G20 finance ministers recently called for the convergence towards a single set of high-quality, global, independent accounting standards on financial instruments, loan-loss provisioning, off-balance sheet exposures and the impairment and valuation of financial assets.
Within the framework of the independent accounting standard setting process, the IASB is encouraged to take account of the Basel Committee guiding principles on IAS 39 and the report of the Financial Crisis Advisory Group; and its constitutional review should improve the involvement of stakeholders, including prudential regulators and the emerging markets.
The IASB, which is responsible for International Financial Reporting Standards (IFRSs) used in over 100 countries, is working with the US Financial Accounting Standards Board (FASB) to reach convergence between IFRSs and US generally accepted accounting principles (GAAP).
Gerrit Zalm, Chairman of the Trustees, says in the letter that the dialogue they have established will ensure deeper input in the development of new standards. The first meeting of this enhanced technical dialogue occurred on 27 August in London. The IASB is also meeting regularly with the Basel Committee and is a member of the Financial Stability Board, where financial reporting issues are regularly discussed. Zalms shares that at the July meeting, the Trustees stressed the urgency in completing the first component of the comprehensive revision of IAS 39, the IASB’s financial instrument standard, by year end.
Zalm also says that the proposals to revise IAS 39 on which the IASB is now consulting globally provide a significant reduction in the complexity of financial instrument accounting. In making their proposals and in order to provide transparency and reflect economic reality, Zalm says that the IASB’s emphasis has been to define in a balanced and transparent way the appropriate criteria for classifying instruments to be measured at cost and fair value—not to increase or decrease arbitrarily the use of fair value. “Whether there is a decrease or an increase of fair value will depend on a particular institution’s business model and holdings,” he states. “The IASB is not proposing that the loan book of banks will be held at fair value.”
Complementing the review of fair value accounting for financial instruments, the IASB is also improving the accounting for loan-loss provisions, says Zalm. He reveals that the IASB is working closely with prudential supervisors, financial institutions, investors, and other stakeholders specifically to develop more forward-looking measures (an expected loss model rather than the incurred loss model currently in place in IFRS and US GAAP). He says that the IASB has already issued a discussion document on provisions and will release a final proposal in the fourth quarter.