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IASB risks fury with IFRS 9 rewrite

Friday 25 November 2011 - by Karina Whalley

 The International Accounting Standards Board has admitted it will have to change part of IFRS 9 in relation to the pricing of assets, despite some countries having already implemented the standard.

Speaking in Melbourne on Friday, the IASB's chairman Hans Hoogervorst says adaptations to the accounting rule will be "limited" but that some countries, such as Australia, would "not be very happy" because they have already adopted its provisions.

The rule is to be changed as part of a plan to make international standards on insurance compatible with the US Financial Accounting Standards Board, according to Hoogervorst.

In accounting rules on offsetting assets and liabilities, the IASB and US counterparts have "ended up in different places" and Hoogervorst says they are going to require additional disclosures to help with comparability, which is not "an ideal outcome".

"As our work on the insurance standard progressed, it became increasingly clear that we had problems with its interaction with IFRS 9," said Hoogervorst on Friday, referring to IFRS 4 on insurance contracts.

"We gradually came to the conclusion that we could make a lot of progress on both these issues - insurance and convergence - by adapting IFRS 9 in a limited way.


"It was not an easy decision to make. Most importantly because we knew that our constituents that have already adopted might not be very happy."

The controversial accounting rule values financial assets at "fair value" - the mark to market rule - or at amortised cost and was first revamped in 2009 following the financial crisis.

But at the time of the change, EU policymakers warned about the "expanded application of fair-value accounting" which they said could fuel financial instability.
 
In his speech, Hoogervorst added that pressure for "wider changes will undoubtedly be there" but assured delegates that the IASB would "proceed with caution and limit any changes to those that are absolutely necessary".

IFRS 9 also contains rules on impairment and hedging valuations.
 
Hoogervorst, who has led the IASB since July when David Tweedie retired, said: "On impairment, the IASB and FASB are more aligned. We are still working very closely together, even though the path towards finding a satisfactory solution is extremely difficult."
 
He stressed the importance of standards for when and how banks write-down losses and said that the two accountancy boards need to get this rule "right".

But the IASB head does not believe ongoing convergence between IFRS and US GAAP is the answer as it could take years to complete. Instead the 55-year-old said: "You can only work towards consistent application if you have one single language, and IFRS is the only candidate."
 
The IFRS 9 is to replace the IAS 39 as the accounting standard for "classification and measurement of financial assets" by 2013, although the IASB has proposed an extension to 1 January 2015.
 


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