Enjoy! Some 148 pages of accounting-for-loan-losses reading:
It’s the IASB’s latest version of its attempt to make banks recognise “lifetime expected” losses on loans or bonds as soon as there are “significant” signs of a credit going bad, instead of waiting until it’s too late and risking a sudden wave of defaults. Read more
Operating leases may not sound all that sexy, but they are a great way to get liabilities off balance sheet. Even better, loads of companies use ‘em! Everyone does it, from airlines to clothing stores, so no need to feel like the odd naughty one out. All it takes is a little structuring to ensure that a finance (aka capital) lease — which does significantly raise liabilities — is booked as an operating lease, keeping debt levels down.
Why then do accounting standard setters want to spoil the parrr-tay by requiring operating leases to come back onto balance sheets? Read more
Netting of the mark-to-market of derivatives positions is attractive. It’s more efficient when it comes to posting and receiving margin, decreasing the amount of operational and counterparty risk. The ultimate in netting efficiency is, of course, the newest too-big-to-fail institutions — central counterparties (CCPs) and clearinghouses.
There’s another place where offsetting positions is attractive: financial statements. It can make a big difference. Citi demonstrates this with estimates of what derivatives exposures (including repos, brokerage receivables, and associated collateral) would look like if you applied full netting instead of that dictated by respective accounting standards… Read more
Oh, those international accounting standard-setters. Such drama queens.
On Wednesday, the International Accounting Standards Board (IASB) and its US counterpart, the Financial Accounting Standards Board (FASB), held a joint meeting to discuss impairment. Read more
French auditors have been lambasted by the UK’s leading accountancy regulator for their performance during the Greek debt crisis. Stephen Haddrill, chief executive of the Financial Reporting Council, criticised the way French banks and insurers had been allowed by their auditors to post smaller losses on Greek government bonds than some European rivals. Mr Haddrill told the FT the lack of “strong auditing” there showed that moves to introduce a more French approach to auditor regulation across the European Union were misguided. EC proposals for a new approach to auditing leaked last month included measures to force big companies to have more than one auditor and banning some auditors from doing consulting work for clients. The French banks’ stance has also been challenged by Hans Hoogervorst, chairman of the International Accounting Standards Board.
From Tuesday’s FT — some letter-writing:
Some European financial institutions should have taken bigger losses on their Greek government bond holdings in recent results announcements, according to the body that sets their accounting rules. In a letter sent to the European Securities and Markets Authority, the European Union’s market regulator, the International Accounting Standards Board criticised the inconsistent way in which banks and insurers have been writing down the value of their Greek sovereign debt. Read more
Some European financial institutions should have taken bigger losses on their Greek government bond holdings in recent results announcements, according to the body that sets their accounting rules, the FT says. In a private letter sent to the European Securities and Markets Authority, the European Union’s market regulator, the International Accounting Standards Board criticised the inconsistent way in which banks and insurers have been writing down the value of their Greek sovereign debt. Separately, the FT also reports that on Monday two top European officials went before parliament to defend the region’s banks.
“We previously expressed the view that, ‘unless the government concerned was prepared to suffer significant economic costs (and in effect, restore bond holders to the position they were in before credit concerns arose) there is no way for holders to avoid having to book losses in their financial statements’.”
Scratch that! Read more
Spotted on the Financial Accounting Standards Board website:
US banks have won an unexpected victory after the Financial Accounting Standards Board backtracked on plans to force them to value their loan books according to market prices, the FT reports. The Board stunned the banking sector in May when it rolled out proposals to account assets and liabilities at ‘fair value’, contrary to moves by the International Accounting Standards Board to allow loans and some other debt instruments to avoid this treatment. FASB’s change of heart will favour banks with vast loan books, like Wells Fargo or Citigroup. Looks like Fitch Ratings’ prediction of ‘condorsement’ in global accounting rules, as reported by FT Alphaville, is bearing out. For now.
This is meant to be the year of accounting convergence.
You’re probably already yawning by now — but wait! This is important. Read more
The former finance minister of the Netherlands has been given the politically sensitive job of running the body that sets the accounting rules followed in the European Union and an increasing number of other countries, the FT reports. Hans Hoogervorst was on Tuesday named chairman of the London-based International Accounting Standards Board, which sets the IFRS accounting norms. Hoogervorst does not actually have accounting experience — but he is an effective diplomat, FT Alphaville observes. He’ll need that skill. Hoogervorst’s main task will be to foster convergence between US companies’ accounting and the standards promoted by the IASB, the WSJ says.
Call off the search. After a year-long global quest and the examination of more than 300 applications, the International Accounting Standards Board has found its man.
And he’s not an accountant. He’s this man: Read more
Retailers, airlines and ship operators may be forced to assume billions of dollars more liabilities on their balance sheets due to a radical overhaul of lease accounting proposed by US and international standard setters, reports the FT. The new rules have drawn strong protests from multinationals about more volatility in their accounts and vastly increased liabilities. The rare joint proposals from IASB and the US Financial Accounting Standards Board have also been criticised for failing to reduce complexity. The upshot, says Lex, is that investors cannot afford to “rest in lease”.
The search for a successor to Sir David Tweedie, chairman of the International Accounting Standards Board, which sets accounting rules for most of the world outside the US, has drawn opposition in Europe over IASB’s conduct of the search, reports the FT. Sir David has presided over deteriorating relations since the financial crisis, with some European officials claiming he has prioritised efforts to get the US to adopt international rules at the expense of European interests.
The world’s top accountants will not meet the June 2011 deadline set by G20 nations to create a single global accounting standard, Bob Herz, chairman of the Financial Accounting Standards Board, the US accounting rule maker, has indicated, reports the FT. After weeks of speculation, the global accounting standards setters – the US FASB and IASB – have signalled they are reconsidering their timetable for convergence. Herz has suggested that the standard-setters could expect the convergence process – which includes about a dozen projects – to run into 2012.
Tremble US financial institutions, for FASB is about to fair value your assets, FT Alphaville writes. Barclays Capital has a handy summary of the planned accounting changes, which banks say will increase volatility. Well, really? Read more
Fair value –or mark-to-market — accounting is back in the news, FT Alphaville finds, as standards boards in the US and Europe dispute over its value. So what role, if any, did fair value accounting play in the crisis? Read more
The International Accounting Standards Board would no longer pursue convergence with its US peer as “an objective in itself”, its oversight body said on Monday, in a fresh sign of waning consensus on accounting rules. The IASB, which sets standards for most of the world outside the US, was nominated by the G20 to oversee development of a single accounting standard by mid-2011. But regulators and accounts say that politicisation of the accounting process will make it hard to achieve convergence of US and international standards.
No adjustment should be applied to remove from the Common Equity component of Tier 1 unrealised gains or losses recognised on the balance sheet.
Thus read the Basel Committee’s recommendations for strengthening the banking sector, released last month. Read more
Convergence of US and international accounting standards is less important than making accounting rules more relevant, an investor poll has found. A survey by CFA Institute, a group of more than 16,000 investment professionals, found that three quarters of respondents believe that improving standards to facilitate investment decisions is “at least as important if not more important” than reducing complexity or convergence. Only 6% of respondents said that converging the International Accounting Standards Board and its US rival should be the key objective.
Some of Europe’s biggest multinational companies are preparing to defy moves by Brussels to delay the introduction of new global accountancy rules within the EU. Companies contacted by the FT say they intend to use the so-called IFRS 9 rules as “proforma” accounts for 2010 and may begin to prepare the numbers for internal use this year-end. Multinationals, particularly in the UK, have been angered by the EU’s delay which they say will be put them at a competitive disadvantage.
Banks outside the US would have to report expected losses on their lending much earlier, under proposals published on Thursday by the International Accounting Standards Board. The plans represent a virtual U-turn from the current system and would allow banks to provide for expected losses over the duration of a loan, rather than, as now, waiting until the losses have occurred – a practice blamed for adding to banks’ accounting burden.
Corporate disclosures are about to get even longer if the International Accounting Standards Board gets its way.
The IASB has just published an exposure draft on its proposals to rejig the way impairments are accounted for. This is a big deal, since one of the prime criticisms of accounting standards in the financial crisis was that loan impairments were accounted for too little and too late. (Another criticism — that there were too many different types of impairment models — is also being dealt with via the IASB’s fair value revisions to IAS 39). Read more
Remember the International Accounting Standards Board’s proposed revisions to IAS 39?
The organisation wants to update the accounting standard, which sets out how banks and other companies should value and categorise their financial instruments. It’s essentially another mark-to-market debate, and one which has provoked varying reactions among the financial industry – with many thinking it will increase the amount of stuff banks have to mark to market, a development many of them haven’t exactly been eager for. Read more
“Accounting changes must be coordinated,” ran headlines on Fed Governor Elizabeth A. Duke’s Monday speech.
In actuality Ms Duke went much further — not only suggesting that the world’s two major accounting bodies, the International Accounting Standards Board and the Financial Standards Board of the US, need to coordinate — but that their proposals for accounting changes are in danger of eradicating traditional banking. Read more
Phew. That was close.
The Financial Crisis Advisory Group has come out and said it — accounting rules were not the root cause of the financial crisis. Read more
What’s this? Now the even the pension trustees have gone all theoretical on market prices.
From the Marathon Club, comprised of trustees and senior executives representing pension schemes with £179bn of assets, and which has submitted a proposal to the International Accounting Standards Board recommending changes to the way pensions are accounted for: Read more
Pity the accounting boards trying to come up with new fair value, or mark-to-market, accounting rules, with industry feedback like below.
It’s from Valuation Research, which undertook a survey on attitudes towards fair value accounting. The report, completed in May, examines the fair value opinions of financial professionals from accounting, investment banking, private equity, hedge funds, law and consulting backgrounds. Read more
Accounting *yawn*. But how about accounting in German?
We are getting the first industry reactions to the IASB’s proposals to reform IAS 39, the accounting standard which sets out how to value financial instruments under IFRS, among other things. And the reactions appear to be largely in the negative. And are coming out of Germany. Read more