08 April 2009

IASB responds to G20 recommendations and US GAAP guidance

The IASB will assess whether the FASB Staff Positions on fair value measurement could lead to different results in practice. The FASB is expected to finalize the FSP later this week.

Responding to the G20 recommendations the IASB announced the publishing of a summary of the work already underway and proposed further actions in due course.

 

Furthermore, the IASB staff will assess whether the FASB Staff Positions on fair value measurement could lead to different results in practice. The FASB is expected to finalize the FSP later this week.

 

The FASB also intends to publish an FSP modifying the recognition and presentation of other-than-temporary impairments of debt securities classified as ‘available for sale’ or ‘held to maturity’. In requesting views on the FASB’s proposals, the IASB noted that the concept of other-than-temporary impairments in US GAAP does not exist in IFRSs. Unlike US GAAP, IFRSs require an entity to recognise an impairment only if the entity has objective evidence to support an expectation of a default on contractual cash flows. In contrast, after the FSP, US GAAP will require an entity to recognise an impairment if it is possible that it will not collect all contracted cash flows or if it is more likely than not that the entity will dispose of the debt security before the entity can recover its cost basis.

 

More generally, IFRSs and US GAAP have multiple and different impairment models that relate to different financial asset types in different ways. The ‘triggers’ that initiate an impairment and the circumstances in which reversals of an impairment are allowed also differ. These factors mean that efforts to align IFRS and US GAAP impairment models could entail significant and complex change.

 

The IASB recognises the need for rapid consideration of these issues, which was anticipated by the shortened consultation period. Staff analysis, the comments solicited by the IASB’s consultation, and input received from the Financial Crisis Advisory Group and the Standards Advisory Council will inform the IASB’s decision at its 20-24 April meeting as to whether, in the light of FASB’s actions, further guidance on the application of fair value in inactive markets and impairment of debt securities is needed.

 

At the same time, the IASB notes that last week the IASC Foundation Monitoring Board and the Trustees supported the IASB and the FASB’s desire to prioritise the comprehensive project to produce a new standard rather than making further piecemeal adjustments. The comprehensive project is to undertake, on an accelerated basis, the replacement of existing financial instruments standards (IAS 39 Financial Instruments: Recognition and Measurement, in the case of the IASB) with a common and globally accepted standard that would address issues arising from the financial crisis in a comprehensive manner. The IASB plans to publish proposals within six months. This course of action is consistent with the call by the G20 ‘to reduce the complexity of accounting standards for financial instruments’.

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