(The article featured
below is a selection from International
Securities and Financial Reporting Update, which is available to subscribers
of that publication.)
IASB Members Say Fair Value Not to Blame for
Financial Crisis
IASB Chair David Tweedie and Board Member James
Leisenring both said at a recent AICPA seminar that fair value accounting was
not the cause of the current financial crisis and should not be suspended. Fair
value means transparency, Tweedie said, and a return to the relative inaccuracy
of historical cost is not an option. To emphasize his point, the chair asked if
anyone would be willing to pay the historical value of Bear Stearns securities.
While recognizing that the fair value standard is
difficult to apply in illiquid markets, Leisenring said that we need fair value
even more in an environment of declining asset values. He believes that any
attempt to weaken the fair value standard would concomitantly weaken financial
reporting. He acknowledged that the fair value standard is complex and has too
many exceptions. Moreover, any mixed measurement models would cause more
complexity. Financial instruments must all be measured at fair value, he
emphasized, in order for it to be a true principles-based standard.
Leisenring also noted that the coming exposure
draft on IAS 12 dealing with accounting for income taxes will not include FASB's
FIN 48. He said that the IASB does not agree with FIN 48 and will expose a
different approach. FIN 48 was adopted to provide for increased relevance and
comparability in financial reporting of income taxes and to provide enhanced
disclosures of information about the uncertainty in income tax assets and
liabilities. The genesis of FIN 48 is FASB Statement No. 109, which established
financial accounting and reporting standards for the effects of income taxes
that result from an enterprise's activities during the current and preceding
years. It requires an asset and liability approach to financial accounting and
reporting for income taxes.
Leisenring also noted that the standards on revenue
recognition present a difficult convergence problem. Differences between the
IASB and FASB, and even within both Boards, have made it difficult to find
common ground. He described the present standards as hopeless.
Both IASB officials said that FASB is committed to
achieving a single global set of high quality financial accounting standards.
This is not a rivalry between the two Boards, said Leisenring. They both have
the same ultimate goal of one set of uniform converged accounting standards. He
cautioned, however, that the process of interpreting the global accounting
standards must be carefully watched lest we allow differing interpretations of
the standards to destroy uniform international standards. He noted that the SEC
favors IFRS as adopted by the IASB, unmodified by any other entity.
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