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The IASB summarized its initiatives underway related to the credit crisis. The three FSF recommendations relating to enhancements to financial reporting are core of the IASB’s response to the credit crisis. These are:
1. Off balance sheet: The IASB should improve the accounting and disclosure standards for off balance sheet vehicles on an accelerated basis and work with other standard-setters toward international convergence.
Response: The IASB already had two projects under way directly related to off balance sheet vehicles. The Consolidation project identifies when an entity should be brought on to another entity’s balance sheet, whilst the Derecognition project examines when assets should be removed from the balance sheet. Both of these projects are described by the Memorandum of Understanding which sets out a roadmap for convergence between IFRSs and US GAAP.
The IASB has prioritised both projects in order to accelerate their completion. It is expected that an exposure draft of the Consolidation standard will be published for public comment during the second half of 2008, whilst staff will be presenting an update on the Derecognition project during the IASB’s meeting in October.
2. Fair value in illiquid markets: The IASB should enhance its guidance on valuing financial instruments when markets are no longer active. To this end, it will set up an expert advisory panel in 2008.
Response: During its meeting in May 2008 and as part of its Fair Value Measurement project the IASB announced plans to form an expert advisory panel to identify valuation and disclosure issues encountered in practice in the current market environment. The outcome of the meetings will assist the IASB in deciding whether additional guidance might be necessary. The panel met for the first time on 13 June.
Three more panel meetings are to take place in July. The objective of the first two meetings, with a subset of panel members, is to discuss the measurement issues raised in the 13 June meeting. The full panel will discuss these issues at its next meeting on 31 July. The staff will summarise the discussions on the IASB Website. A similar process is planned for the disclosure issues raised.
Although the panel meetings are held in private, a summary of the discussions will be presented to the IASB in a public meeting. A summary of the issues addressed in the first panel meeting is available on the Fair Value Measurement project page.
You can also listen to the recording of the IASB’s meeting in June when the staff presented the summary.
3. Disclosure: The IASB will strengthen its standards to achieve better disclosures about valuations, methodologies and the uncertainty associated with valuations.
Response: The IASB will review IFRS 7 Financial Instruments: Disclosures as part of its Consolidation project to assess the standard’s effectiveness in ensuring that entities disclose information that reflects their exposure to risk and any potential losses arising from financial instruments with the off balance sheet entities with which they are involved.
Steps taken to date by staff include consultation with preparers and users of IFRS compliant financial statements, an analysis of good disclosure practice observed in financial reports and a review of good practice suggestions made by regulatory bodies.
The staff expect to have proposals for the Board to consider at its September meeting.