Wednesday, July 15, 2009

International Accounting Standards Board Proposal: Banks Will Be Allowed to Hide Losses.

According to a proposal of the IASB (International Accounting Standards Board), banks and insurers will soon be allowed to hide losses on certain investments. The proposal, made under the headline "improving financial instrument accounting" has potentially significant implications for the reporting by financial institutions. My conclusions are the following:
  1. Do not confuse "accurate reporting about an organisation" with "truth". The answer is clouded by politics and big money.
  2. The proposal is also a strong driver for average Joe to stop paying taxes as at the end he will be urged to foot the bill.
  3. Given the rush for this proposal, the panic for a total meltdown of the financial industry is real;
  4. Investments in financial institutions will be based on gobbledygook financial statements.
  5. Money wins over politics or Wall street owns the politicians.
  6. After trust in accounting is gone, what's next?
  7. Buy physical gold
Update August 5, 2009: Some good news. Brother FASB does not agree with IASB and both are in meetings at the moment.

The International Accounting Standards Board (IASB) published for public comment an exposure draft of proposals to improve (:)) financial instrument accounting.

IASB Web site

The proposals form part of the IASB’s comprehensive review of financial instrument accounting. The proposals, which the IASB believes will significantly reduce complexity and make it easier for investors to understand financial statements, address how financial instruments are classified and measured. The proposals also answer concerns raised by interested parties during the financial crisis (for example, eliminating the different impairment approaches for available-for-sale assets and assets measured using amortised cost). The IASB plans to finalise the classification and measurement proposals in time for non-mandatory application in 2009 year-end financial statements.

The proposals also respond directly to and are consistent with the recommendations and timetable set out by the G20 leaders and other international bodies. In order to be responsive to calls for improved accounting, the IASB decided to split the comprehensive project into three phases (the other phases address the impairment methodology and hedge accounting). The IASB plans to complete the replacement of IAS 39 during 2010, although mandatory application will not be before January 2012.

Introducing the exposure draft, Sir David Tweedie, Chairman of the IASB, said:

The financial crisis has demonstrated that investors need to be given a better understanding of information presented in the financial statements about financial instruments held or issued by a company. Making it easier for investors to understand financial statements is an essential ingredient to the recovery of investor confidence.

The proposals today are an important first step in this process. They also respond directly to concerns raised about the accounting for financial instruments. In finalising these proposals we will continue to work jointly with the US standard-setter, the Financial Accounting Standards Board, to achieve a common and improved accounting standard on financial instruments.

The IASB will host two live Web presentations to introduce its proposals on Wednesday 15 July 2009. The first will take place at 9:30am London time. For the convenience of interested parties in different time zones the second webcast will take place at 3:00pm London time. An IASB ‘Snapshot’, a high level summary of the proposals, is also available to download free of charge from the project section of the IASB website.

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