Friday, October 10, 2008

IASB Relents on Mark to Market Rules

The IASB has taken the unusual step of suspending its normal due process to deal with changes to mark to market rules. The change comes under pressure from European Union politicians such as Nicolas Sarkozy of France. The following excerpts from an article by John Rega of Bloomberg sets out the issues.

In step with U.S. rule makers, the International Accounting Standards Board plans next week to ease ``fair-value'' rules that have forced banks to take writedowns on losses in securities holdings. The IASB's supervising foundation today waived procedures, such as requesting comments from the public, to accelerate changes to the rules used in more than 100 countries.

European government leaders have called for the change to give their banks the same rules as U.S. companies, following a move to change U.S. Generally Accepted Accounting Principles. The IASB overseers, the International Accounting Standards Committee Foundation, said today that their action wasn't spurred by political pressure.

``Any weakening of the IASB's independence would be likely to reduce transparency,'' said the foundation, which oversees the board's working methods. Interference would ``potentially lead to a weakening of standards worldwide, and would ultimately undermine investor confidence at a fragile time.''
European Union, the biggest group users of International Financial Reporting Standards, already plans to make a change to the same effect. The bloc's executive arm next week will propose changes to the rules for how IFRS applies in the 27 countries.

The IASB and EU moves will let banks reclassify some of their holdings as banking assets, a shift -- normally forbidden -- from the so-called trading book, where values are subject to more volatility from fluctuations in market prices. Securities, loans or other assets held as investments continue to be ``marked to market,'' or revalued with swings in market prices.

The change is ``as a matter of urgency,'' EU Financial Services Commissioner Charlie McCreevy said yesterday in a speech at the European Parliament in Brussels. He called on the lawmakers and national governments to sign off on the revision in time for banks to apply it in reporting third-quarter results, typically published as soon as the end of the month.

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