CESR comments on EFRAG's Draft Comment Letter on The IASB's Discussion Paper On Credit Risk in Liability Measurement.
02 September 2009
Appropriate disclosures are necessary in order to provide users with the information necessary to value an entity appropriately and to ensure sufficient market transparency for investors.
The Committee of European Securities Regulators (CESR) has, through its standing committee on financial reporting (CESR-Fin), considered EFRAG’s draft comment letter on the IASB’s Discussion Paper (DP) on Credit Risk in Liability Measurement.
Changes in the fair value of an entity’s liabilities have been put particularly under the spotlight during the current financial and economic crisis, as highlighted in the report of the leaders of the G20.
CESR agrees:
· that subsequent measurements of financial liabilities should, in principle, not reflect changes in own credit risk;
· to incorporate changes in own credit risk in the subsequent measurement when an entity is able to buy back its own liability and when the liability is in the form of a debt instrument traded in an active market with observable listed prices (level 1 measurement); and
· that appropriate disclosures are necessary in order to provide users with the information necessary to value an entity appropriately and to ensure sufficient market transparency for investors.
As a final comment, CESR notes that this discussion paper has been produced and published on the initiative of the IASB alone and does not form part of the work done under the Memorandum of Understanding. Bearing in mind the importance of this issue for the ongoing and further work of the IASB, CESR would encourage the IASB to strengthen its liaison with the FASB when discussing the outcome of this project.
© CESR - Committee of European Securities Regulators
