EU Ministers Ask IASB 'Please Explain'
EU is Threatening to take IASB to task over Mark-to-Market Stance
May 8, 2009
Charlie McCreevy, EU internal market commissioner, urged the International Accounting Standards Board (IASB) on Thursday, May 7, 2009, at the Financial Reporting in a Changing World conference in Brussels, to be more flexible on mark-to-market accounting rules in the light of the current financial crisis.
EU finance ministers were concerned standard setters were not responding fast enough to the financial crisis, the Financial Times reported on May 8, 2009. “The International Accounting Standards Board needs to show they understand these concerns and can take the steps necessary to address them quickly. Otherwise, the progress towards global accounting standards is going to be called into question,” McCreevy said.
Mark-to-Market Change
After the US standard-setter, the Financial Standards Accounting Board (FSAB), relaxed its mark-to-market rules last month in response to pressure from the banks. EU finance ministers fear European banks have been put at a disadvantage. They are concerned the changes will give US banks greater flexibility in valuing their assets, enabling them to make their balance-sheets appear healthier than their European rivals.
However, the call for change appears to ignore the work of the Financial Crisis Advisory Group (FCAG) established by IASB and FSAB in response to the financial crisis. The group has just reported to the heads of the G-20 following their meeting in April that it has prioritized mark-to-market issues and the two boards are working on a joint proposal to be released later this year.
Financial Crisis
John Smith, an IASB board member, told the conference accounting rules played little, if no, role in the financial crisis and that IASB guidance on fair value were "in the same place" as FASB."We at the IASB have been and remain committed to responding in an urgent and responsible manner," he said. "The financial crisis has highlighted three primary lessons for accounting standard-setters:
- "The integrated nature of capital markets, combined with the mobility of capital itself, highlights the need for a commonly accepted set of accounting standards.
- Financial institutions, regulators and investors failed to understand adequately the risks being taken. Accounting should play an important role in assisting all parties in this regard. Accordingly, there is a need to provide additional transparency to the risks being taken by financial institutions and provide meaningful information to investors and regulators.
- The current accounting rules create numerous options, which reduce comparability and add unnecessary complexity. Accordingly there is an urgent need to address the accounting for financial instruments to reduce complexity, enhance comparability and relevance and provide a basis for convergence worldwide."
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