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The most recent meeting was held in April in Johannesburg and top of the list were the accounting developments and implications of the global financial crisis. One area in particular was the pressure that had been brought to bear by both the European Commission and the US Congress to try to persuade standard-setters to allow banks more leeway in reporting the value of the assets they held.
Back in November 2008 the UK Accounting Standards Board (ASB) co-ordinated a communiqué issued by the NSS to the IASB and its trustees expressing support for the IASB’s goal and governance structure. It emphasised the importance of following appropriate due process but acknowledged that in extraordinary times that process might be shortened. When this happened national standard-setters would assist in stimulating debate to make that shortened process effective. It also urged those adopting international standards to accept the decisions of the IASB where these are made with adequate due process and deliberation.
Ongoing support
The meeting in April reaffirmed this support and endorsed the IASB’s statement from April this year in which it concluded that the recent guidance issued by the US standard-setter, the Financial Accounting Standards Board (FASB), was in line with existing guidance on IFRSs, contained in the IASB’s Expert Advisory Panel report, Measuring and disclosing the fair value of financial instruments in markets that are no longer active. ‘We stick by the November communiqué’, said Ian Mackintosh, the Chairman of the UK ASB who chairs the NSS Group. ‘In the current climate, one must be careful that the argument of the level playing field does not come to be a dive to the bottom. It should not be abused to become a process which just allows banks to trump each other’, he said. ‘We need transparent reporting.’ The meeting also unanimously supported the IASB’s decision to embark on an urgent six-month timetable to publish a proposal to replace the existing financial instruments standard, IAS 39, which has for so long been at the root of much of the controversy. The NSS pledged support and a promise of active involvement, as and when required, in the process of replacing the standard.
Dynamic provisioning
The NSS meeting raised other important issues. The issue of whether accounting standards and prudential regulatory requirements were procyclical and had helped to exacerbate the financial crisis was debated; in particular the idea that banks should be allowed to build up in good times capital buffers that could be released to help out in bad times. The Group examined two different options. The first was dynamic provisioning, which would attempt to anticipate the economic cycle and provide for losses ahead of time and, secondly, a requirement for an additional non-distributable capital reserve. ‘Everyone was clear it [dynamic provisioning] shouldn’t go through the profit and loss account’, said Mackintosh. ‘It shouldn’t be affecting your bottom line.’ However, there was some support for a type of non-distributable capital reserve but it was agreed that further research and field-testing would be required.
There was also a general agreement that there was a need to differentiate between accounting standards and prudential regulation and to acknowledge that they had different objectives. ‘If you have a stability forum’, said Mackintosh, ‘then you should also have a transparency forum. Hiding or distorting your results should not be used as a way to achieve stability."
Robert Bruce
The views expressed in ths article are those of the author and do not represent the views of the IASC Foundation or the IASB.
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