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31 december 2009

Accounting standards: a challenging reform


The financial crisis highlighted the pro-cyclical nature of accounting standards, i.e. their capacity to accentuate the impact of the business cycle.

 

The fair-value model, which requires assets to be booked at their market value and not their purchase value, obliges banks to recognise any loss of value in their assets as effective losses. For assets that had become illiquid, fair-value accounting aggravated the impact of the crisis.


In April 2009, the G20 demanded the urgent creation of new, high-quality accounting standards that were close to proposals made by the FBF back in 2008. Within that framework, the IASB undertook a wide-ranging reform of IAS 39 in June 2009. In November, the European Union decided against fast-track endorsement of IFRS 9 on the classification and measurement of financial assets, the reform's first phase.


The September G20 asked international and American bodies (IASB and FASB) to speed up their joint work to set out a single set of international accounting rules by June 2011 at the latest. The FBF is favourable to convergence. As with the reform of IAS 39, it will remain vigilant to ensure that new standards properly reflect institutions' economic performances

and do not aggravate cyclical effects. The FBF regrets that the G20 failed to explain the need for a mixed valuation model in which "fair-value accounting" would only be applied when there is an active and liquid market, and the need to take a company's business model as the first criterion in classifying financial assets.

 
 
 
 
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