IASB seeks views on accounting for ‘own credit risk’
15 July 2009
The discussion paper explores the issue of ‘own credit risk’ effects when debt is fairly valued, given the relevance to other IASB projects - accounting for financial instruments, insurance, fair value measurement and provisions.
Credit risk in liability measurement is often referred to as ‘own credit risk’. Existing International Financial Reporting Standards (IFRSs) require profit or loss resulting from changes in ‘own credit’ to be booked when debt is fair valued. From an accounting perspective there are good reasons for applying fair value measurement to both assets and liabilities. However, some see the outcome as counter-intuitive. Recent developments in the financial markets have led to increased concerns about gains that result from changes in the value of an entity’s liabilities.
Commenting on the publication, Sir David Tweedie, Chairman of the IASB, said:
We are aware that the practice of booking profits or losses resulting from changes in the fair value of ‘own credit risk’ has been identified as one of the major issues in fair value accounting. Responses to this consultation will assist the Board in further developing its comprehensive response to the financial crisis.
The deadline for comments is 1 September 2009
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