ABA Raises Concerns on FASB, IASB Accountancy Changes

Major accountancy changes and overhauls may take several years to implement across wide markets due to the complex nature of the instruments affected. Therefore, financial accounting boards in markets across the globe are taking the opportunity to begin revising rules in the midst of a lull in the securitization markets. But coordinating sweeping rule changes on an international level can become not only complex but controversial, especially with native accountancy changes coming about at the same time. At least one industry group native to the US is speaking up this week on conflicting initiatives within US and international accountancy changes. The American Bankers Association (ABA) on Thursday issued a white paper raising concerns on the apparent expansion of mark-to-market, lack of due process and divergence between the process being taken by the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) on projects relating to financial instruments. The ABA said IASB and FASB are essentially moving on similar projects, but toward different solutions and at different speeds, which may make international convergence impossible. In the US, most firms adhere to the set of Generally Accepted Accounting Principles (GAAP), which is likely to be completely phased out by 2015. The accountancy methods pushed by the IASB are called the International Financial Reporting Standards (IFRS). “What the accounting boards are discussing now would be the biggest accounting change we’ve ever seen,” said Donna Fisher ABA’s senior vice president of tax, accounting and financial management. “We are deeply concerned that the shortcuts being taken will result in flawed or inconsistent rules.” The ABA expressed concern that the standard setting process is being compromised, partly because IASB’s time line for completion may not allow US companies to have a chance for appropriate due process in providing input. IASB plans to finalize a significant part of its financial instruments accounting standard in 2009. “If the IASB finalizes its rule on accounting for loans and debt securities prior to the FASB finalizing its rule, FASB will have to adopt the IASB’s rules or adopt a different rule which would result in divergence between US GAAP and international rules,” the white paper says. “The goal should be improving the current accounting rules that are in need of repair within a time frame that provides for due process and strives for international convergence.” The ABA also voiced its concern for the apparent encouragement of mark-to-market in both FASB and IASB. Marking assets to market, ABA argued, promotes procyclicality in pulling values down. “Given the role that mark-to-market has played in exacerbating the current economic crisis, it is hard to understand the rational for expanding it at this time,” Fisher said. “Mark-to-market accounting lacks a sufficient level of reliability, which the current market has demonstrated.” Financial accountancy in US and international markets remains in a state of flux, according to HousingWire‘s sources. Despite the drawbacks seen by ABA, the FASB/IASB changes reflect a step toward a more global accountancy standard. To meet investors’ needs and enhance investors’ confidence, there’s a general need for global accountancy rules, said Gavin Francis, director of capital markets at IASB, in past conversations with HousingWire staff. In December, he said new changes were not structured finance-friendly, and accountancy changes would take years to implement. Write to Diana Golobay.