This week, the International Accounting Standards Board (IASB), as part of its response to the global financial crisis, has taken a series of actions to address recommendations made by the G20 leaders last month:

• Improved accounting for off balance sheet items: On Thursday, 18 December, the IASB published proposals to strengthen and improve the requirements for identifying which entities a company controls.  Further proposals on off balance sheet items, covering the derecognition of assets and liabilities, are due to be published towards the end of the first quarter of 2009, consistent with the G20 target date of 31 March 2009.
• New disclosure requirements related to impairment : The IASB and US Financial Accounting Standards Board (FASB) are both proposing changes in disclosure requirements for impairments to arrive in a common outcome. The proposals will enable companies to disclose the profit or loss that would have
  been recorded if all financial assets (other than those categorised at fair value through profit or loss) had been measured using amortised cost (ie using an incurred cost model) or all had been measured using fair value. The boards are publishing their exposure drafts next week and are asking for comments by mid-January. This will enable any possible change to take effect for 2008 year-end accounts.
• Acceleration of efforts to address broader issues of impairment on a globally consistent basis : Both the IASB and the FASB, whose respective standards have different impairment requirements, have asked their staff to consider together how existing requirements relating to reversals of impairment losses might be changed, and to report back to the boards in the next month. The boards will also address the whole question of impairment as part of an urgent broader project in 2009, and this will also be a topic for consideration by the Financial Crisis Advisory Group (FCAG).
• Clarifying the accounting treatment for some collateralised debt obligations (CDOs): Some stakeholders have called for the IASB to clarify whether the accounting treatment for CDOs under International Financial Reporting Standards (IFRSs) differs from their treatment under US generally accepted accounting principles (GAAP). The FASB has published draft guidance and plans to finalise the guidance shortly.
• Ensuring embedded derivatives are assessed and separated if financial assets are reclassified : Following requests from some stakeholders at the recently convened FASB-IASB round tables, the IASB is also planning to publish next week an exposure draft with a 30-day comment period that proposes clarifying that all embedded derivatives should be assessed and, if necessary, separately accounted for in financial statements. Participants in the round tables asked the IASB to act in order to prevent any diversity in practice developing as a result of the amendments made to IAS 39 Financial Instruments in October 2008 to permit the reclassification of particular financial assets.

• Considering fully other issues related to financial instruments, including the fair value option, raised at the recent series of round tables in London, New York, and Tokyo: Round-table participants supported reconsideration of the fair value option alongside a broader reconsideration of the classification categories. At the same time, almost all the users of financial statements at the round tables said that permitting reclassification out of the fair value option now, without proper consideration of all the issues, would not improve financial reporting or enhance investors’ confidence in financial markets—reclassifications out of the fair value option would permit losses to be hidden. Both boards find the views of those user participants compelling and believe that any change in the fair value option should be made only as part of a broader examination of accounting for financial instruments.
  
  Indeed, participants saw an urgent need for such a broader examination by the IASB and the FASB of the role of fair value measurement for financial instruments, including the issues of improving the impairment requirements, classification issues, the fair value option, and transfers between the categories. The boards have agreed to fast track this urgent project, which could involve significant changes to IAS 39 and the relevant US standards. Given the urgency of the matter, the boards’ intention is towork to finish this project in a matter of months rather than years.
  

The decisions taken by the boards this week follow earlier action detailed below:

• an IASB amendment to permit reclassifications of financial assets under certain circumstances (13 October),
• proposals to enhance disclosures of financial instruments (15 October),
• publication of guidance for the application of fair value in illiquid markets (31 October), and
• the establishment of a joint Financial Crisis Advisory Group, chaired by Harvey Goldschmid, a former commissioner of the US Securities and Exchange Commission, and Hans Hoogervorst, chairman of the Netherlands Authority for the Financial Markets. This group will meet several times in the first quarter of 2009.

Commenting on the work completed this week and the IASB’s response to the financial crisis more generally, Sir David Tweedie, IASB Chairman said:

The IASB continues to move quickly to address financial reporting issues highlighted by the global economic crisis. G20 leaders have called for a globally coordinated response. We are committed to developing globally consistent approaches with our colleagues at the US FASB in order to serve the interests of investors and other users of financial information. We will act as speedily as possible, consistent with robust due process, to ensure the outcomes are themselves robust and well respected.

Press enquiries

• Mark Byatt, Director of Corporate Communications, IASB
  Telephone: +44 (0)20 7246 6472,
  Email: mbyatt@iasb.org
• Sonja Horn, Communications Adviser, IASB
  Telephone: +44 (0)20 7246 6463
  Email: shorn@iasb.org