Fair Value, Political Pressure and Independence

Tired of the fair value debate? Hope not, the International Accounting Standards Board is about to enter another round.

On April 2, the day FASB announced their new guidance on fair market measurements and impairments, Trustees of the IASC Foundation said that while they acknowledge the desire to achieve commonly accepted positions between US GAAP and IFRS, they urged the IASB to avoid piecemeal approaches. The Trustees support the IASB announced plan to undertake a comprehensive proposal on accounting for financial instruments that will result in a proposal within six months.

European Finance Ministers were not happy with the IASB’s announcement and released a statement saying it is critical that the IASB change its rules to conform to the U.S. rules so European Banks are not put at a competitive disadvantage. The finance minister from Italy said he would “just download the U.S. text with Google and adopt it with a European blessing”. EU Internal Market Commissioner, Charlie McCreevy said, “This issue has to be addressed immediately”.

The IASB responded by saying that reports that the new FASB guidance will create new differences with U.S. GAAP appear to be overstated but promised to closely review the final FASB staff positions when released. Regarding guidance on other-than-temporary impairments, the IASB noted that the concept does not exist in IFRS and that aligning the differences between the different impairment models will be a major undertaking. Regardless, the Board promised to address the need for additional guidance at their April 20-24 board meeting.

The IASB seems to have diffused the need for immediate action for now. Hopefully, the Board will decide to address accounting for financial instruments in a comprehensive manner after its April meeting. Doing so will help repair damage created the last time EU politicians called for immediate action – and the IASB responded. The IASB has another challenge brewing. How do you think they should respond?

Regarding the FASB’s new fair value guidance, Chairman Robert Herz said that while the 15 day comment process was accelerated, they received more input than normal and asserted due process was followed. In the end, the proposals were modified to incorporate input received and the new guidance was issued with a formal vote. One concern is that this event will open the door to even more industry and political pressure in the future.

Given the extreme political pressure and turmoil over this issue, do you believe that the FASB should have responded differently?

 

- Paul Parks|www.IFRS.com

Comments

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It is my hope that these politically driven changes in accounting standards don't backfire such as "successful efforts" accounting did in the late 1970s. Hopefully, the IASB will be more successful than the FASB was at standing up to political and industry pressures.

[nike shox]

The IASB has another challenge brewing. How do you think they should respond?

[eve isk]

the FASB succumbed to Congressional and industry pressures when it modified its fair value and impairment standards earlier this month.

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[Aa1netcome]

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[Aa1netcome]

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[Aa1netcome]

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Great post.keep posting us this type of wonderful information.We always look forward towards your post.

[Lynda M. Dennis]

I hope the IASB is allowed to pursue its plan to review fair value standards using a comprehensive approach rather than one that is piecemeal. Unfortunately, the FASB succumbed to Congressional and industry pressures when it modified its fair value and impairment standards earlier this month. It is my hope that these politically driven changes in accounting standards don't backfire such as "successful efforts" accounting did in the late 1970s. Hopefully, the IASB will be more successful than the FASB was at standing up to political and industry pressures.

[Sunil Goyal]

The FASB could have taken some more time to delibrate the issue as the relaxing may not be in long term interest of industry and may presently harm the investors more than providing them the relief.

[Jim Koltveit]

If you are wrong, it is best to admit the error and move on.