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The end of the road for convergence over accounting standards?

Thursday 10 June 2010 - by Richard Martin

 The Association of Chartered Certified Accountants head of financial reporting Richard Martin voices his concerns that global accounting standards may never be attained due to the split in approach between the two standard setting bodies

In May, the US accounting standard setter, the Financial Accounting Standards Board, published proposals for reforming the accounting for financial instruments.

This is the culmination of a year when the FASB and the International Accounting Standards Board (the standard setter for most of the rest of the world) have been moving in different directions and at different speeds on this most crucial subject.

The plans are the key response by IASB and FASB to the financial crisis and are fundamentally about how much financial items should be at fair value or marked-to-market.

For some, fair value accounting exacerbated the crisis by exaggerating the profits in the good times and then overstating the losses.

The two systems of standards - Generally Accepted Accounting Principles and International Financial Reporting Standards - started from a broadly comparable base in this area. There were, however, important differences in some of the detail.



Some European banks howled in protest about the lack of a level playing field, for instance on the ability to reclassify instruments out of fair value when the crisis struck and markets dried up. Clearly a new joint identical global standard was needed and the G20 group of governments have repeatedly asked for this.

The IASB published a new standard IFRS9 in November 2009, which continued with some items at fair value and some at historical cost, albeit also rationalising the existing treatments. In IFRS9, financial assets can be at amortised cost when cash flows consist only of interest and capital repayments and are managed on that basis. All others are at fair value.

For holdings of equities, there would be a once-and-for-all option to recognise the fair value changes (up or down) in other comprehensive income (OCI).

The intention was to align the accounting with the business model. Large chunks of assets would remain on a familiar cost basis – trade receivables, customer loans, credit cards etc. – but equities, derivatives and instruments containing derivatives would be at fair value.


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